When Should You Hire Freelance vs. Staff?

For more than a decade, the gig economy has transformed work and the way business works in America. Access to remote work has dramatically changed the definitions of work and workplace. More and more people work from home or off-site and more people these days have the moniker of consultant or contractor.

Studies tout that a whopping 34 percent of workers are now freelancing, whether as their main or supplemental income, contributing $715 billion to the economy. The gig economy is expected to grow to 40 percent of the workforce by 2020.

“OK, great—but what about me?” you’re thinking. Let’s look at the pros and cons of hiring freelance versus staff:

  • Cost—You save 20 to 30 percent annually with a freelancer by not having to pay for benefits. And, if your worker is remote, you don’t need office space or office supplies.
  • Risk Reduction—Freelancers reduce employers’ risk, having no right to collect unemployment insurance or receive workers’ compensation benefits. They also have no right to sue for harassment or discrimination, and are easier to terminate and replace.
  • Access—The meteoric rise of talent-pairing platforms allows you to find even the most unique worker to meet your needs. There are platforms to hire IT pros, academics, writers, designers, marketers, accountants, lawyers, sales staff and business consultants. And once you agree on terms, they start working ASAP.
  • Limiting Payroll—Using freelancers who are not considered employees to get work done doesn’t add to headcount, but beware: The IRS is watching and has definite ideas about who can be called an independent contractor.
  • Global Reach—You can find talent outside your geography. It’s a way to expand or understand new markets with a finite budget outlay. You can open the door to growth with minimal risk.

Now for some of the negatives for freelancers and positives for staff:

  • Multi-Tasking—Make sure your contractor is available on your schedule, not theirs. Many companies recruit a team of freelancers so they’ll always have backup.
  • Relationship Building—To develop clientele, in-house employees are aware of what’s happening in the company and can leverage this to your advantage when building relationships with clients.
  • Training and Supervision—The investment to get that person up and running—isn’t making it on a full-time employee a better option? If the position requires oversight, hire an employee. Freelancers work outside normal business hours and their progress is not as easy to monitor.
  • Investment—Your company’s success is not a priority to a freelancer, but a full-time employee is likely to feel a higher level of commitment and more motivated to add to your bottom line.
  • Classification—The amount of control you hold over a worker defines if he or she legally can be classified as a freelancer or employee. If you’re audited by the IRS or the Department of Labor, be prepared to defend your choice. Both agencies are scrambling to play catch-up with this new working model. In 2014, employers had to pay $79 million in back wages to more than 100,000 workers who were determined to be employees, not contractors. Make sure you’re hiring right and not running the risk of misclassification.

As a general rule, a contractor controls his or her business and determines when, where and how the work is performed, as well as sets prices. The IRS has guidelines to help you determine which employment status is most appropriate for your worker.

Another general rule: Freelancers tend to be perfect for short-term projects, one-off tasks, infrequent work or work that needn’t be performed 9 to 5 or on-site.

As long as you categorize correctly, you have more ways than ever to find the right mix of in-house and freelance talent to grow your company.

Aloha Payroll can help you manage your workforce, both freelance and staff, with an array of business solutions. Contact us today and let’s get started!




Industry Newsletters 2017