Lucey Accounting understands that it can be a dilemma when considering to hire an employee or a contractor.
The difference between a subcontractor and an employee can be very subtle. A subcontractor (independent contractor) can work for others, can often set their own work hours, and often provides their own tools. On the other hand, you have few reporting or tax responsibilities for independent contractors. The payroll responsibilities for an independent worker are significantly less than for an employee Let’s look at some Pros and Cons.
Employee - Pros of Hiring an Employee
Loyalty - Employees have a stronger loyalty to the company they work for. Independent contractors work for multiple companies.
More Control - It is easier to guide an employee than an independent contractor. With an employee, you are free to alter his or her role, or add additional responsibilities. You can also set guidelines for when the employee reports to work.
Better Work Flow - Businesses tend to operate more efficiently with employees than they do with independent contractors. It is much easier to coordinate a project or job when you can simply walk over to someone’s desk. There is no guarantee you will be able to contact a freelance or independent contractor when a job needs to be completed.
Employee - Cons of Hiring an Employee
More Overhead - Hiring an employee is more expensive than hiring an independent contractor. You have to pay for health insurance benefits, a portion of the taxes, 401K contributions, and pay for work related expenses and supplies.
Greater Management Role - The more employees you have, the more time you will have to spend managing them. Less work is involved with independent contractors because they operate almost autonomously.
Hiring a subcontractor which is a 1099 contractor, they are technically not an employee. They are paid a set amount for an agreed upon task or project. Independent contractors do not receive benefits, they pay their own taxes and health insurance. They do not receive paid holidays, vacation time, or sick time. In exchange, they are free to work completely on their own schedule.
Subcontractor - Pros of Hiring a Subcontractor
Reduced Overhead - Again, using independent contractors is much less expensive than hiring full time employees.
No Health Insurance Costs - The high cost of health insurance is a major financial burden on many companies. When you use an independent contractor, this is one cost you won’t have to worry about.
Adjusting to Varying Workloads - When you use an independent contractor you can bring in additional help when you are really busy, but you are not stuck with those employees on payroll when business slows down. There are write offs that you can take off on your taxes including but not limited to office space, travel, office supplies, tools etc.
Expertise - Contractors typically are well trained in their field and can hit the ground running with minimal training. They can focus on a very specific project that you might not have expertise in. (For example: marketing your business vs accounting)
Subcontractor - Cons of Hiring a Subcontractor
Lack of Control - You cannot tell a subcontractor when to report to work, or how long they must stay. In fact, it is against the law. You also cant stop them from working with other companies and putting a higher priority on their projects. The only recourse if you are unhappy is not to hire them again.