Every employer needs workers to fulfill various business tasks. Small companies benefit from the extra set of hands since it expands operations and eases the workload, and larger companies need an even bigger workforce. More people allow them to accommodate orders and maintain growing operations. When seeking people to fill those roles, employers must be careful about the relationships they commit to. They can either have employees or independent contractors. Both parties get the job done, but there are different terms to consider.
Employees vs. Contractors
An employee is an in-house worker who directly operates within your company. An independent contractor is self-employed and works for various organizations. They usually have a business entity and lend their skills and services for payment.
Some employers sign both employees and independent contractors, while others only stick to one or the other. Their employment relationship with them varies regarding legal protection, payment and more.
Legal Protection
One of the main differences between employees and contractors is their legal protection. Employees are covered by the Fair Labor Standards Act, which means they are entitled to minimum wage, overtime payment and working benefits.
The FLSA does not recognize independent contractors since they have a separate business. You can still offer similar wages and overtime pay under a contract to attract these workers. The written document will serve as legal evidence for the terms.
Payment
Employees are on a business’s payroll and are entitled to a fixed salary. Employers are liable for paying federal income and Social Security tax. You also provide paid vacation and other additional allowances for internet and travel.
Payment arrangements may shift with independent contractors. Some offer a fixed salary, while others prefer an hourly fee since they may operate during select hours. Another option is to pay based on output. You could skip providing leaves and bonuses in this employment relationship.
Onboarding
Onboarding is one of the most important processes when introducing a worker into the company. It kickstarts employee engagement and familiarizes new hires with company processes. Employees undergo this training to learn more about the business.
Independent contractors typically skip the onboarding and training stage. They are chosen for a specific task or project, which requires minimal company information and familiarity. However, you can still make them mandatory when necessary.
Work Requirements
Employees must follow set work requirements, from rules and regulations to the assigned shift. They also follow company policy and go to the office as necessary. They have an average skill set suitable for their work responsibilities.
Contract workers negotiate for a remote or hybrid setup. They are relatively free from the company’s obligations unless stated in their contract. About 37% of businesses hire more independent contractors for specialized skills, while only 29% note the cost implications.
Task Delegation
Employees must fulfill their responsibilities independently. However, contractors can sign subcontractors to delegate certain tasks. This arrangement happens with bigger projects. Both independent workers will usually form their terms on working time and payment.
The primary employer may add a clause about hiring subcontractors at their discretion. You can also request a surety bond from a general contractor to guarantee project completion. Those terms do not impact the subcontractor, so keep tabs on who you hired.
Future Relationship
Employees are trained to rise through the ranks in a company, moving from supporting roles to managerial positions if they’re interested. These milestones are an incentive for workers to stay with a company. It can also support faster onboarding and streamline recruitment.
Meanwhile, independent contractors come and go. Employers may stay in contact with them and rehire them for future projects, but that’s the extent of their relationship. This factor is advantageous if you only need those extra sets of hands for a short period.
Recruiting Employees
Recruiting employees is often viewed as the standard. You get a dedicated workforce throughout operational hours. There’s also less risk involved since you get to put them through onboarding and training and subject them to company rules and regulations.
However, finding the right people is challenging. Many industries are facing a labor shortage. For example, about 622,000 manufacturing job openings have yet to be filled. Even with decent employee acquisition, employers must combat the high quit rate.
Working With Contractors
Independent contractors have a unique employment relationship since they’re on equal footing with employers in running a business. However, you can still negotiate an agreement that would benefit both sides.
Working with contractors also fills the gaps in your workforce. You gain the specialized skills to speed up processes and accomplish projects. There were about 36.6 million independent workers in the U.S. in 2023 and only 15.8 million in 2020, so there are bound to be further increases soon.
Diversify Employment Relationships
No matter where you stand on the employee vs. contractor conversation, the answer will always change depending on the company and its needs. Invest in those different employment relationships, review the experiences and make decisions based on that. Every company is different, and you should determine the best arrangement for yours.
Jack Shaw, editor of Modded and author of numerous articles on business success and self-improvement, seeks to inspire readers with his practical tips and strategies for growth. His writings can be found on HellaWealth, USCCG and more.
Worker stock image by Prostock-studio/Shutterstock
