If you have more work than your current workforce can handle, it may be time to initiate the recruitment and hiring process. But before you create a job posting, you should consider whether your business would be best served by hiring an employee or an independent contractor (IC).
It’s not always an easy decision to make. There are pros and cons to hiring either an employee or an IC. To help you make that decision, let’s start by looking at the differences between employees and ICs.
In a piece in the Monthly Labor Review, which is published by the U.S. Bureau of Labor Statistics, Charles J. Muhl uses Black’s Law Dictionary to define an “‘employee’ as ‘a person in the service of another under any contract of hire, express or implied, oral or written, where the employer has the power or right to control and direct the employee in the material details of how the work is to be performed.’”
Jean Murray fleshes that definition out nicely in a piece at The Balance Small Business, explaining that when you hire an employee, you:
- Provide direction regarding that person’s work, including hours of work;
- Train that person to perform the job to your specifications;
- Have few restrictions on the type of work you can ask the person to complete;
- Can terminate the person without paying out a contract;
- Must comply with federal and state laws regarding the payment of wages; and
- Must abide by payroll and tax laws, including paying your share of the person’s Social Security and Medicare taxes, as well as contributions towards paid vacation time, retirement plans, unemployment insurance, and worker’s compensation insurance, all of which can increase your payroll costs by 20-50 percent.
Additionally, you may need to provide an employee with a workspace and tools with which to do their job. If the employee will be working remotely from home, you may still need to provide things like office stationary, equipment, and furnishings, computer hardware, access to IT support, and access to internet and/or phone service, if any of these items are required to perform the job efficiently. Clearly, the overhead costs associated with hiring an employee can be substantial.
An IC is often a professional with extensive training in their field. As a result, they usually require little training or supervision on the job.
Charles M. Muhl also relies on Black’s Law Dictionary to define an “independent contractor” as someone who, “‘in the exercise of an independent employment, contracts to do a piece of work according to his own methods and is subject to his employer’s control only as to the end product or final result of his work.’”
As with the definition of employees, Jean Murray provides some terrific examples to more fully explain an employer’s role in regards to ICs:
- You can assign duties and deadlines to an IC but they typically work independently with little supervision;
- You should allow an IC to set their own hours and take on work for other employers if they wish; and
- You are required to submit a form to the Internal Revenue Service, reporting the sum you paid to an IC, but you do not contribute towards Social Security, Medicare, paid vacation time, retirement plans, unemployment insurance, or worker’s compensation insurance for the IC.
Additionally, many ICs work remotely and provide their own tools to complete their work. As a result, overhead costs for ICs are typically quite low.
Benefits of Hiring Employees
When you explore the definition of an employee, it’s clear that they require a significant amount of your time and resources. However, there are often benefits associated with investing in employees, including:
- Their increased commitment to you and pride in their job, which will likely result in increased productivity and efficiencies;
- A stronger and more flexible team, as employees learn from and support each other and you; and
- A well-coordinated workforce that works together to complete tasks and are aware of each other’s duties.
Hiring an employee may be just what your business needs, even with the significant time, resource, and financial investment. However, it’s also possible that an IC is the better choice, particularly if you find yourself in transition due to the COVID-19 pandemic.
Benefits of Hiring Independent Contractors
It’s obvious from the definition of an IC that there are several benefits to hiring a professional of this type. Some are listed by Darrell Zahorsky in a piece at The Balance Small Business, including:
- Little investment in human resources is needed since ICs are already trained, have all required permits and licences, and require little direction;
- Significant savings on payroll, benefits, and insurance costs;
- A quick boost to profits, since ICs are productive without requiring a significant time, resource, or financial investment;
- Lower overhead since ICs typically provide their own workspace and equipment; and
- The flexible, short-term scheduling of ICs can address shifting demands of your business, allowing you to reduce costs during slow periods or add additional staff temporarily to address higher demands.
As well, if you would prefer to hire an employee, an IC can be an excellent stopgap solution while you work through the recruitment and hiring process, which can take six months or longer.
Hiring Independent Contractors Through a Recruitment Agency
The process to hire an IC is quite similar to hiring an employee. You will need to advertise for and source suitable candidates, and carry out screening and interviews, as well as background, reference, and credential checks. Once you hire an IC, you would also be responsible for their payroll.
A recruitment agency can help streamline the process of hiring and paying ICs.
To start, you should contact your recruitment agency and provide information about the position. Using that information, the agency will:
- Create a job posting for the their own job board (and may also place it on other job boards);
- Actively source suitable candidates through existing relationships, referrals, and networking;
- Vet candidates who apply, to make sure their qualifications are suited to the role;
- Do an initial screening interview, which they may ask you to attend; and
- Introduce short-listed candidates for your final consideration.
Once you choose which IC to hire, the recruitment agency can handle most of the paperwork, including the IC contract. Because this new hire is not technically an employee, it’s important to clarify their role by creating a contract that addresses:
- Terms of the general agreement between you and the IC;
- Details regarding the nature of the work to be completed;
- The hire’s status as an IC;
- Details regarding wages and payments;
- Expenses that the IC is responsible for;
- Provision of benefits and insurance; and
- The conditions under which the contract can be terminated.
In addition to assisting you with the hiring process and the contract, some recruitment agencies keep ICs on payroll. In that case, the agency can handle all aspects of the IC’s payroll, including withholding applicable taxes, paying contributions towards the IC’s Social Security and Medicare taxes, paid vacation time, retirement plans, and unemployment and worker’s compensation insurance.
With the assistance of a recruitment agency, adding an IC to your talent pool is a relatively easy process that can benefit your bottom line greatly. If you would like to take advantage of the flexibility and expertise that an IC can offer to your organization, reach out to connect with us today.