How Using Freelancers or Contractors Can Save Your Company Money

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How Using Freelancers or Contractors Can Save Your Company Money

How Using Freelancers or Contractors Can Save Your Company Money

Image courtesy of nalinratphi at FreeDigitalPhotos.netIf there’s one type of work that’s been growing by leaps and bounds in recent years, it’s freelance work. By the year 2020, it’s expected that a significant portion (more than 40 percent) of the workforce in the US will be classified as contingent or freelance workers.

There are benefits to freelance work for both the contractor and the employer. People who work as independent contractors often enjoy greater flexibility and can schedule their work around their lives, not the other way around. Working with contractors can help a business meet specific needs at a particular time and can save companies a considerable amount of money.

Independent Contractors Cost Less

Even if your business only offers benefits such as retirement matches and healthcare to a few employees, hiring people on a full or part-time basis can get pretty pricey. Employers are responsible for paying half of an employee’s Medicare and Social Security taxes (7.65 percent of an employee’s compensation). Employers also need to pay for worker’s compensation insurance and state unemployment insurance.

But when you decide to work with a freelance, your company doesn’t have to contribute to those three items. A contractor is technically his or her own employer and needs to pay the full amount of Medicare and Social Security taxes. It’s also up to the contractor to purchase insurance if he or she chooses.

Since contractors often work from home or usually bring their own equipment, your business is able to save on other costs as well. For example, you won’t have to purchase a laptop or smartphone for a contractor and you won’t have to reserve a desk for him or her.

Freelancers Can Come and Go

The nature of a freelance agreement is that a worker can come and go as you need. When you hire someone on a contract basis, you specify the terms of the agreement from the start. For example, you might hire a freelancer to work on one single project with an open ended time frame. Once the project is over, you can part ways amicably, until you have another project you’d like the contractor to work on. Another option is to hire someone to work with your company for a set period, such as three months or a year. You might decide to renew the contract at the end of the period, decide to hire the person full-time or decide to part ways.

Since you’re not working with an employee, you aren’t actually firing anyone at the end of the contract. You also don’t have to worry about scrambling to find a new employee or someone to take that contractor’s place.

Remember There’s a Line Between Freelancer and Employee

There’s a big difference between an employee and a freelancer or independent contractor. Your company can’t hire someone as a contractor then expect him or her to behave like an employee. Since a contractor is taking on a certain amount of risk and responsibility, it’s recognized that he or she should have a certain degree of say over when and how he or she works.

It’s fairly common for companies to misclassify employees as freelancers. The Department of Labor and the IRS take this pretty seriously, and have required companies that misclassified their workers to pay a combined $79 million back wages in recent years.

Three factors generally decide whether a person is really an employee or can be classified as a contractor. One is the financial factor, which includes things such as how the person is paid, who pays for expenses, and so on. Another factor looks at the behavior of the employer and contractor/employee. If an employer has a lot of say or control over where and how a person performs the work, that person is usually an employee. Employees are also told what types of products to use, where to buy those products, and the exact tasks he or she must complete.

The third factor is the relationship between the employer and the person. If the working relationship is going to be ongoing and the employer expects to provide benefits, the person is an employee. Usually, contractors are hired for specific projects.

Did you know that you can hire contractors to perform the role of certain executive level positions? For example, New Direction Capital serves as a virtual CFO for companies that can’t afford or don’t yet require a full-time CFO. Contact us today to learn more.

Image courtesy of nalinratphi at

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