Hiring independent contractors gives enterprises staffing flexibility, allowing them to staff up or down according to current goals and growth. This can make businesses more agile and competitive among their peers while bypassing the expense of recruiting, hiring, and training an employee for the same work. There are many ways in-house counsel can demonstrate their value to the company. Being proactive about employment law issues, especially issues involving the proper classification of independent contractors, is near the top of the list. With Practical Law, you are only minutes away from finding up-to-date and useful answers, forms, practice notes, and checklists about all the company’s employment law questions.
- According to the Department of Labor, contractors aren’t considered employees under the Fair Labor Standards Act.
- Despite this flexibility, independent contractors aren’t usually entitled to workers’ rights or statutory benefits, such as paid time off, sick leave, and other standard employee perks.
- Ultimately, hiring a contractor or employee should align with your business needs, project requirements, and organizational goals.
- Their rights are largely governed by a state’s contract law and any other provisions states may have regarding their employment status.
- You won’t have to face the trauma, expense, and potential legal trouble that can accompany firings and layoffs.
If you make a mistake or underperform, you’re also more likely to be placed on an improvement plan rather than abandoned and never hired again. That also comes independent contractor vs employee pros and cons with greater compensation, like healthcare or retirement plan contributions. Employees also enjoy a certain amount of commitment from their employers.
The IRS “Independent Contractor vs. Employee” Test
For business owners welcoming a new team member, the crucial step involves categorizing them as either an employee or an independent contractor. In this guide, we will guide you through the distinctions between an independent contractor and an employee, elucidating the significance of these classifications in the business realm. You can assign duties to an independent contractor and impose a deadline and work product, but you cannot tell that person how to get the job done.
In other words, whether it makes more sense to take them on as an independent contractor vs. employee. Employees develop an employer-employee relationship with a company, and full-time employees are likely to dedicate all working hours to the company. As a workforce, you expect them to perform all work that is essential to the business. An employee is someone who works in the service of someone else under an implied contract of hire where the employer has the right to control how the employee does the work.
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Employers must provide statutory benefits to employees, including annual leave, overtime pay, workers’ compensation, protection from employment discrimination or wrongful termination, and more. Companies that fail to offer the required benefits face legal and financial penalties. As you might expect, there are also significant differences in training and onboarding between independent contractors and employees. Contractors, for instance, don’t get much (if any) onboarding at all. Employees, on the other hand, may receive long on-ramps that introduce them to every aspect of the business, including the culture, hoping that they will stick around for the long haul.
However, there are drawbacks to being an independent contractor as well. It’s important when considering independent contract work to understand the pros and cons of working as an independent contractor. As you consider the options, make sure to account for all of the pros and cons and weigh them appropriately.
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