Becoming an entrepreneur is one of the most terrifying (yet rewarding) experiences that someone can take part in. Fortunately, though, today’s technology has made it easier than ever before to start a company, and you can even run an entire business from a laptop.
It can still be difficult, though, to understand the many nuances of running your own company. Understanding the difference between who’s a contractor and who is an employee, for example, can cause issues for those who are unprepared.
Not sure where to start? Don’t worry, we’ve got you covered.
Let’s take a look at everything you need to know.
So, Who Is An Employee?
There is a unique factor that decides if someone is a legal employee of your company— control. If you can control the work they do, the amount of work they do, and when they complete the work, then that individual is an employee by law.
Even if you give a worker the freedom to choose what they work on (and sometimes when they work), they’re still considered an employee if you’re able to control the details of their work in completed or performed.
The aforementioned ‘freedom,’ though, isn’t always as explicit as saying “work when you’d like, just have it done by the deadline.”
A salesperson, for example, has the freedom to approach or not approach customers on the floor, but the way they operate as a worker must be by the company’s guidelines. They also have to report to a superior, meet a quota, etc.
So, they’re considered an employee for legal purposes.
Who Is a Contractor?
In stark contrast to how an employee operates as a worker, independent contractors have far more flexibility.
In terms of how a business owner manages independent contractors, they’re only able to control the result of the work and not how it’s completed. A freelance graphic designer is considered an independent contractor since they provide a service (logos, posters, etc.) in exchange for compensation.
In this scenario, the designer sends drafts and completed projects to their clients, and the people they’re working for have no input in how the work is completed.
Business owners typically pay independent contractors per project, meaning there’s no established salary. It’s important to note that independent contractors file their taxes differently than a conventional employee, and business owners must report any amount paid over $600 to contractors in the past year to the IRS.
How Do I Know Which to Hire?
This largely depends on how your business operates.
If your business structure is relatively disjointed (different workers in different time zones, no established hierarchy among workers, etc.), then hiring independent contractors is often your best course of action.
Since your workers will be performing their duties at different times of day and night, they’ll likely need the flexibility to work in a way that’s best for them.
If your company needs workers to come to the office every day to provide their services (a secretary, for example), then you’ll need to hire employees. In general, if a role is done consistently and requires a worker’s physical presence, an employee is best for the job.
It’s possible to incorporate both, though. An advertising firm may specialize in graphic design and account management but may not have the talent or resources to shoot commercials for products.
Outsourcing this role to an independent contractor (in this case a videographer) will allow the business to fulfill this obligation without having to hire a dedicated employee to do so.
What Roles Are Best Suited For Independent Contractors?
Temporary projects or large numbers of short projects are the best scenarios to hire an independent contractor. Content creation, for instance, often consists of a one-off project or a handful of assignments (think a brochure or a batch of articles for your site’s blog).
Other instances of content creation include reading scripts for videos or ads, music production, etc.
Projects that will only last for a certain period are also ideal opportunities to hire contractors over employees.
What Are The Benefits of Hiring Contractors?
Since your contracted workers aren’t official employees, you’re not responsible for things like severance pay, health benefits, etc. You’ll save money in taxes, office space, etc.
You’ll likely find that your projects are completed quickly and with high-quality results due to contractors having the opportunity to work in an environment that suits them best.
Additionally, access to a more diverse range of workers brings plenty of flexibility, meaning you can often have projects outsourced overnight as opposed to waiting for an employee to finish it the next day.
As an indirect result of hiring independent contractors, companies can also reduce the risk of experiencing a lawsuit. Employees have numerous rights that protect them as workers, and one of them is the ability to sue a previous employer for wrongful termination.
Since contractors are independent workers, they don’t have the same rights as employees do. While it’s always important to function honestly and fairly as a business owner, disgruntled employees can abuse their rights and file a lawsuit over false claims.
You’ll Find Better Workers When You Understand Your Needs
With the above information about who is an employee and who is a contractor in mind, you’ll be well on your way towards running your company as efficiently as possible.
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