Employee versus Contractor

According to a recent study commissioned by the Freelancer’s Union and Elance-oDesk, 53 million Americans now work as freelancers-project-based independent contractors who generally work for more than one client. As an employer, hiring freelancers has its benefits:

  • Independent contractors have special skills that your staff may lack, and require no training.
  • Ideally, if your independent contractors are readily available, you can scale up or down on staff as needed, and have fewer people on the payroll during slow times.
  • You don’t pay payroll taxes or provide benefits, which saves you money.
  • Independent contractors work on their own equipment, often in their own workspaces, which also saves you money.
However, before you transform your entire staff into a team of freelance workers, beware of these drawbacks:
  • You have less control. Independent contractors do not require supervision, which you may find incredibly annoying, depending on your management style. In addition, you should not supervise independent contractors as you risk making them appear to be employees. Misclassification of employees as independent contractors can land you in hot water with the IRS.
  • Because they have special skills, independent contractors usually charge a higher hourly rate than you would pay an employee.
  • Independent contractors do not have the loyalty of full-time employees and are not always available when you need them.
  • With employees, you generally own the copyrights to any work they do for you. With independent contractors, this is not automatically the case.
  • The IRS, in order to collect taxes, prefers to see workers classified as employees. If you misclassify your independent contractors as employees, you may attract the IRS’ attention and face an audit.

If you’re considering hiring independent contractors, weigh the pros and cons. Go to for more information on how to classify workers.