In late 2023, a study by marketing platform Wripple revealed that 92% of companies anticipate an uptick in engagements with independent contractors in the next 24 months. Shannon Denton, co-founder of the platform, explains that companies prefer hiring freelancers because it lets them pay only for the specific work they need, as opposed to paying incurring salaries and benefits. This approach offers tangible cost savings and greater efficiency, often completing tasks 30 to 40% faster than with traditional employees.
Indeed, independent contractors can bring flexibility and cost savings to your team. But employees offer long term stability. So do independent contractors truly deliver more value? Let’s dive in and find out.
Independent Contractors: The Flexible Workforce Solution
Global laws define independent contractors as self-employed individuals operating independently on a contract basis. They are also called contract workers, freelancers, or contractors. Because they’re considered self-employed, they technically run their own entities, just like business owners run their own sole proprietorship, limited liability company (LLC) or corporation. As such, they are paid for their work the way you would pay an agency or legal counsel for their services.
So if you hire writers, marketing managers, software developers, and other positions overseas as independent contractors, how should your payroll work?
Independent contractors are not officially part of a company’s payroll. Instead, their salaries are written off as business expenses, reducing your taxable income. But it doesn’t mean they’re not eligible for fixed monthly salaries. You can pay them a fixed amount every month as long as it’s stated in their contract. You can also pay them by output or hours worked, or based on a project’s timeline, completion, or outcome.
Simply put, paying them a fixed monthly salary is optional. You can be more flexible with your payment setup as long as they are amenable to your terms.
Can Freelancers Play by Your Rules?
Depending on their work arrangement and contract, you may require independent contractors to follow your company policies. For example, you may request they use employee monitoring software or restrict them from working for other companies by giving them a full-time role.
However, technically speaking, independent contractors can work for as many companies as they want. They are not obligated to commit to a single company. If you want them to treat your company as their only employer, you should explicitly state that in their contract. It will also be helpful to give them the same benefits an employee enjoys, like health insurance and paid time-off, to keep them engaged and motivated. Additionally, consider offering career growth opportunities so they can visualize a long-term relationship with your company.
Advantages of Hiring Freelancers
Independent contractors’ contributions are essential to reaching your business goals, whether they work exclusively for your company or not. But, unless otherwise stated in their contract, you can implement the following when hiring freelancers and enjoy significant cost savings.
- They are not covered by the labor laws in your business location
- Their taxes are not withheld
- They’re not entitled to government-mandated benefits
- They’re not entitled to health insurance
- They’re not entitled to paid time-offs
- You’re not required to provide them training unless it’s for the specific project you hired them for
- You’re not required to provide them work equipment
- You’re not required to reimburse them for work-related expenses
Take note that some tax-related perks may only be applicable if you hire freelancers from overseas. If you hire local contractors, they may still be covered by your country or state’s labor laws. Either way, though, independent contractors lead to lower costs, fewer compliance headaches, and more flexibility. Giving them a benefits package is entirely optional.
But again, giving independent contractors the same benefits as an employee is worth considering. Many companies provide work equipment and reimburse their independent contractors for their expenses, on top of granting them paid time-offs and health coverage. Such a competitive benefits package can make it easier to recruit freelancers and achieve business goals. Plus, it’s definitely wiser to scale your team for the long-term than to hire a freelancer for one project and then offboard them once that project is done.
Ensuring Compliance in Your HR Records and Processes
An advanced and hyperflexible HR software will help you easily classify employees and independent contractors, avoiding confusion and errors during paydays and tax filing seasons. You can manage both employees’ and independent contractors’ records on a core HR platform that easily organizes and configures team data.
Using an automated payroll system also makes compliance a breeze, whether you’re paying employees or independent contractors. The system can automatically deduct taxes and contributions from employees’ paychecks, eliminating manual and time-consuming calculations. You can also apply reimbursements, bonuses, incentives, and loan repayments to their payroll. On the other hand, you can simply configure freelancers’ payroll settings to exclude tax and contribution deductions from their salaries.
If hiring remote freelancers is too much trouble for your HR department, consider turning to remote teams services provided by an Employer of Record, like KAMI Workforce. An Employer of Record helps you find the best talents globally and handles the entire hiring process on your behalf. They will also manage local payroll and compliance needs and even provide value-add services, like work equipment and health insurance, at your request.
Independent Contractors or Employees: What’s the Smarter Workforce Solution?
Both independent contractors and employees deliver value and are essential to moving your business forward. Choosing between the two comes down to your business needs and long-term goals.
A full-time employee is the right choice If you’re aiming for:
- Long-term commitment and loyalty
- Offer career advancement opportunities through training and development
- Consistent, full-time workforce availability
- Full compliance with labor laws in your location
- A team that grows with your company
On the other hand, an independent contractor is the smart choice when:
- You need specialized skills for a specific project
- You want to minimize overhead costs
- You prefer flexibility in your workforce
- You’re looking to scale quickly without the commitment of full-time employment
- You need to navigate complex international hiring laws with ease
Align your choice with your company’s strategy, resources, and goals to make a decision that meets your current needs and supports your future growth. Whether you choose an employee or an independent contractor, the key is to structure the relationship in a way that maximizes value for your business.
To know how KAMI can tailor your HR processes for your diverse and flexible workforce, talk to our experts.