Are you thinking about expanding your workforce? Deciding who to hire isn’t always easy. If you need someone for short-term, flexible work, consider hiring an independent contractor. But if you want a long-term, steady addition to your team, an employee might be the better fit.

So, when should you hire a contractor versus an employee? What are the differences between them? Let’s break it down.

What is an Independent Contractor?

An independent contractor is a self-employed person who works on a specific project or task. Contractors manage their own schedules, use their own tools, and bring specialized skills to the table. They’re in charge of how they work, focusing solely on the results you want. Because they aren’t employees, they can work for other companies at the same time, offering flexibility for both you and them.

Who is an Employee?

Employees, on the other hand, work directly for your company. They follow your instructions, work your hours, and use your equipment. They’re a long-term investment in your business, bringing stability and often working on tasks that need continuous supervision. Unlike contractors, employees depend on you for benefits like health insurance, paid time off, and retirement plans.

Independent Contractors vs. Employees: Key Differences

Let’s get to the core of it: how contractors and employees differ across the main areas.

1. Work Scope and Control

• Employees follow your rules, using your methods to complete work. They’re usually part of your daily team, working under a manager’s guidance.
• Independent Contractors work on their own terms. They decide how, where, and when to complete tasks as long as they meet deadlines.

This control factor is key. If you want to oversee every step, you’re likely looking for an employee. But if you care only about the final outcome, a contractor may be your answer.

Read More: Employee vs. Contractor Misclassification

2. Payment Structure

• Employees earn a regular wage, typically paid bi-weekly or monthly. They might also get bonuses or overtime pay. Taxes are deducted by the employer, so employees don’t handle their own tax filing.
• Contractors bill per project, task, or hour. Their payments vary and don’t include extras like overtime or bonuses. They’re responsible for their own taxes.

For employers, the difference is clear: paying contractors can be more flexible but sometimes more expensive on an hourly basis. For employees, the steady paycheck adds financial security and reliability.

3. Benefits and Legal Protections

• Employees enjoy benefits, such as health insurance, paid leave, and retirement contributions. They’re also protected by labor laws, which ensure fair treatment and prevent discrimination.
• Independent Contractors don’t get company benefits. They manage their own health insurance, retirement, and vacation days. Contractors are protected by contract terms, not by the company’s policies or labor laws.

This difference affects worker satisfaction, too. Employees often feel more secure because of these protections, while contractors appreciate the freedom of setting their own rules.

Learn More: Global Employee Benefits: Attract & Retain Top Talents

4. International Considerations

Expanding your team across borders? Here’s where things can get complex:

• Employees are subject to the labor laws of their country of residence. Different countries have unique rules around work hours, benefits, and tax deductions.
• Contractors often need to navigate international tax rules, business registrations, and sometimes even visas to work legally in other countries.

Understanding these differences can save your company from legal and financial headaches. Compliance with local laws ensures smooth operations and happy workers.

How to Decide: Employee or Independent Contractor?

Sometimes, the line between contractor and employee isn’t clear. But here’s a simple way to start sorting it out:

1. Check the Contract

Is this a full-time, long-term contract? Then you might need an employee. Contracts for contractors are often shorter and limited to specific projects.

2. Examine the Work Relationship

Think about how much control you want over the worker. Do you want them to follow strict guidelines and report to you daily? That’s an employee relationship. But if you only need a project done without oversight, a contractor fits better.

3. Know Your Legal Obligations

When you hire an employee, you’re responsible for tax deductions and must provide a W-2 form. For contractors, you’ll issue a 1099 form but won’t deduct taxes. Misclassification of workers can lead to serious IRS fines, so make sure the relationship is clear.

Read More: The Pros and Cons of Hiring with an Employer of Record (EOR)

Pros and Cons of Each Role

Need help deciding? Here’s a quick list of the main advantages and drawbacks.

• Employees

Pros:

• Stability and continuity for your business
• Easy to train and monitor
• Eligible for benefits that attract talent

Cons:

• Higher overhead due to benefits and tax responsibilities
• Long-term commitment
• Limited flexibility if your business needs shift

Read More: How to Find & Hire Remote Employees

• Independent Contractors

Pros:

• Flexibility for short-term needs
• No benefits or tax responsibilities for the employer
• Can bring specialized skills quickly

Cons:

• Less control over work processes
• No continuity if they leave after the project
• Possible higher cost per hour

Learn More: Top 7 Benefits of Hiring Independent Contractors in 2024

Hire Smartly with Gloroots

Finding the right fit; contractor or employee; is essential for your business’s success. But managing global talent and staying compliant across borders isn’t always easy. That’s where Gloroots comes in.

With Gloroots, you can hire, pay, and manage talent worldwide, all while ensuring compliance with local laws. We handle onboarding, payroll, and taxes, so you can focus on growing your team and your business.

Ready to find the perfect talent without the headache? Reach out to Gloroots for a seamless hiring experience across 140+ countries.

FAQs

1. What happens if a worker is misclassified?

• Misclassification can lead to penalties, back taxes, and legal issues. It’s essential to define roles clearly to avoid trouble with the IRS.

2. Do independent contractors get any benefits?

• No. Independent contractors handle their own benefits, including health insurance, retirement, and vacation days.

3. What’s the main tax difference between employees and contractors?

• Employees have taxes withheld by the employer, while contractors file their own taxes and receive a 1099 form.