Employee or Contractor – To Be Your Own Boss or Not

For most professionals, there comes a crucial choice of whether to seek employment in a firm or work independently as a contractor or a freelancer. For employers though, it often burns down to tax compliances in hiring a contractor or appointing a full-time employee. Hiring a contractor for services helps employers avoid unnecessary tax burdens, while employees are required to be paid benefit costs like insurance, unemployment facilities and holiday pay, among others, as per Government regulations.

While an employee is assigned projects under the governance of the employer, a contractor works under its own business model and employs its own employees for the purpose. A contractor also maintains its own business account and essentially serves as a separate entity.

Employee or Contractor - To Be Your Own Boss or Not

If job security is not your primary concern, being contractor has its upside. It usually comes with a higher pay, with the added advantage of working freely and with the power of running your own business. Contractors can change their sponsors from time to time and work for different clients. They can also work for more than one client at a time. For those into research and development, unlike an employee, a contractor can keep patents to his name and not give away the same to the employer.

On the downside though, self-employment taxes are typically higher than that of employees. Contractors also have the additional headache of setting up their own infrastructure. They do not enjoy retirement benefits and health insurance paid by the employer. The usual higher salary also comes with the risk of being out of work for a prolonged and uncertain period of time, due to lack of available projects from companies hiring contractors.  As a contractor, responsibilities are always more than that of an employee as delays in delivery and damaged infrastructure can lead to financial losses.

Some independent contractors hire an umbrella company to deal with the relevant paperwork and manage all administrative tasks, payroll and invoices, while they can focus on the core work. They assist in getting all future contracts, with continuity of employment and holiday benefits, which are usually not available to temporary workers.

All being said and done, with changing businesses, the world must put behind the debate of contractor versus employee. They must analyze whether sharing of finances is a win-win situation for all. Some introspection into work policies would help understand whether companies are exploiting people who prefer job security and higher pay. Moreover, many of the best talents in the industry are only available as independent agents and freelancers. To bring them on board, employers must break the barriers of choosing the less costly and provide them with more options and work arrangements. Collaborating with competitors to exchange talent also helps in building the best product and delivering the best service. If the business demands that contract workers be given benefits extended to full-time employees, to get the best out of them, the shackles of categorization needs to be broken and companies to evolve into newer ideas of employment.