Independent contracts are popular among small business owners, but as more people decide to go freelance, large companies might have to jump on the bandwagon to work with the best talent. Weigh these pros and cons before you make the decision to go W2 or I9.
Pros of hiring independent contractors
As an employer, you don’t have to pay federal or state payroll taxes, healthcare benefits, workers’ comp, unemployment, etc. You also don’t have to worry about buying new equipment, providing an office space, travel, and admin requirements.
Less exposure to workplace lawsuits
You can’t be sued for some of the most common labor lawsuits, like wrongful termination and workplace injury. In rare instances, you could get slammed with a discrimination suit. However, this is highly unlikely due to Title VII, the most well-known employment discrimination law, but there are other laws that independent contractors (IC) could use as a plan of attack. So, just in case, don’t discriminate .
Employee test drives
If you have plans to hire a full-time employee next quarter but can’t make the leap right now, independent contractors are a great way to test drive potential hires. The sourcing, recruiting, and interviewing is already done. The contractor knows your business and trust has been established.
Flexibility increases productivity
Flexible work schedules are pulling more people out of the traditional labor market every year. Unlike full-time employees, IC can hand-pick their work. They can turn down boring projects. They have autonomy. This inspires and motivates both full-time and contract employees.
Fill a temporary or as-needed role
You should never hire someone and then scurry around to find work for them a few months into the job. There’s got to be a demand. If you have a one-time project (e.g. building a new product), one that’s ongoing (e.g. IT, writing, social media management, etc.), or need people on an as-needed basis, independent contractors can take the lead.
Temp or recruitment agencies can do the work for you
You could take the reins and source, recruit, and hire a contractor on your own, or you could work with an agency. A good temp or recruitment agency employs the contractors for you. They provide the benefits, 401K, PTO, and all those other incentives and costs. The contractors are pre-screened and their qualifications are confirmed. There’s less risk on your end, so why not?
Increased access to skills
You don’t have to spend ages finding that one person with a laundry list of mismatched proficiencies. You also don’t have to provide full-time employment for every needed skill on your team. You can have one or two team members with a myriad of skills and contract the other more specialized ones.
Cons of hiring independent contractors
Availability can vary
Say it takes months to find an IC that you trust and produces great work. The project ends. A few months later, another project needs a quick turnaround, but she’s not available anymore. The dreaded hunt starts again. If you work with a temp agency, they may send a different person. Both of these scenarios can make the quality of work and overall output inconsistent and unpredictable.
No incentive to go the extra mile
Employees get healthcare benefits, 401K match, PTO, bonuses, and commission. Independent contractors, on the other hand, typically pay for benefits out-of-pocket, manage their own 401K without a match, and sacrifice a paycheck if they want to take time off. So, what’s the incentive to get the job done? A paycheck, right? Quality of work may not be at the forefront if the deal is to get the cash once the project or pieces of a project are complete. In other words, there isn’t as much accountability.
Full-time employees may feel threatened
While it may be easier for the employer to hire a contractor, W2 employees may fear that their job is at stake. This could negatively impact employee morale, quality of work, and even increase turnover. Your dedicated full-timers should be the top priority, so make sure you take care of them first.
They could work for your competitors
Employers can work in a non-compete into a contract agreement, however that could deter a contractor from working with you altogether.
You may lose ownership
You can try to incorporate ownership and copyright into the contract agreement, but again, there could be consequences.
Opportunities for training are limited
Unless you find an independent contractor who has experience in your niche—not just with the type of project—you run the risk of a flopped project. For example, Qualigence is the definition of a niche business. We approach recruitment research and recruiting with a totally unique strategy. It takes more than a peruse through the website to learn the business, so we’re careful to provide IC with contract-specific training materials.
Supervision is minimal
Independent contractors are independent. A lot of contractors work remotely these days, especially in creative roles. Your best bet is to set up a communication plan/frequency prior to hiring to make sure you’re both on the same page. If you require that a contractor come on-site, however, you can include them in meetings or check-ins like you would your full-time employees.
With that said, if you’re more of a micromanager and can’t trust a contractor 100%, contracting an employee is not the right option.