A few months ago, I wrote a blog post about the difference between independent contractors and employees. In that piece I concluded that many small business owners would prefer to designate their workers as contractors or freelancers because doing this was best for their company’s bottom line. The data collected by Scott Shane confirms this finding because it shows the spending by sole proprietors “on contract labor rose from 3.5 percent of…business expenses in 2003 to 6.4 percent in 2011”. There are three reasons why small business owners have chosen to hire more freelancers to fulfill their needs:
1. In my June 2014 post, I argued that many small businesses prefer contractors or freelancers because of the financial benefits:
“Unlike employees, independent contractors are not entitled to overtime. Not only that, you wouldn't have to worry about contributing to their [benefits], unemployment, Social Security, and Medicare taxes. When it comes to anti-discrimination laws, independent contractors are not covered so that's one less potential lawsuit you'd have to think about.”
2. Shane argues that another reason could be because of flexibility:
- Companies can lay off freelancers easier than they can employees. Also, whenever the economy is doing well, contractors can be hired faster.
- Companies also get a chance to try out their workers before they make a long term commitment. If a contractor is not a good fit, they can just decide to not renew his/her contract. Conversely, if they find a worker they like, they can simply to hire him/her as an employee.
3. Per Shane, small businesses also use contractors because it allows them “to hire specialists at a reasonable cost.” In so doing, many small business owners get access to highly skilled workers like those specializing in human resources or accounting.
Despite these benefits, before you rush out to hire independent contractor, you should first take these three steps to safeguard your business. If you are a freelancer / contractor, before you sign on the bottom line, take the time to protect yourself by perfecting your freelancer agreement.
