Employees vs. Independent Contractors

When it comes to business hiring, employers always have tough decisions to make. Whether you decide to hire an employee or an independent contractor, both options have their own pros and cons.

Independent contractors, for instance, can provide valuable assistance when small businesses go through demanding periods, allowing business owners to take advantage of opportunities without having to bear the responsibility of additional payroll taxes and benefits offered to permanent employees.

Still, depending on how long your extra help is needed and the long-term direction of the company, investing in a permanent employee may be a better choice. Weigh the following business hiring considerations to help decide which option is best for your company:


Avoiding overhead costs such as benefits, payroll taxes and additional on-site equipment (office furniture, computers and telephones) are obvious advantages to working with contractors. Using independent workers can make your business more profitable, since income brought in from projects will not be defrayed by the expense of taking on a new employee. Contracting independent workers may also free you from personnel-management issues that can arise from hiring employees.

Healthcare costs

Given the skyrocketing costs of health care, not having to pay for health benefits is an undeniable advantage for using independent contractors. The average annual premium cost for small businesses (with less than 200 employees) was $5,046 for individual workers and $13,250 for family coverage, according to a 2010 business hiring survey by the Henry J. Kaiser Family Foundation and the Health Research & Educational Trust. Those figures are only likely to increase.

Legal issues

If you consistently rely on the same contractors for extensive projects, deciding how to classify them for tax purposes can be murky. The general rule for distinguishing contractors from employees is that you have the right to control or direct only the result of the work from a contractor, rather than when, where and how it is done. If you set a work schedule or dictate specific instructions to be followed, the worker may need to be considered an employee. The Internal Revenue Service is cracking down on these misclassifications and making offending companies liable for back employment taxes, interest and penalties.


Contractors and permanent employees both come with advantages and disadvantages when it comes to managing work flow. Independent workers can offer flexibility in keeping up with changing business demands, helping you take advantage of opportunities that arise while maintaining greater cost control during slow periods. Yet, it may take longer to get contractors up to speed on a project, particularly if they work remotely. Juggling multiple projects and building timelines may be more easily accomplished with one onsite employee than with multiple, dispersed freelancers.


Small businesses often rely on staff members to fulfill a variety of roles. Having cross-trained staff members helps ensure that you have someone who can step up to complete a task if a colleague is not available, while a contractor may be unavailable because of commitments to other clients. If business hiring choices include making a decision between a contractor and a full-time employee, think about whether you might benefit by having another staff member whom you can count on to perform multiple types of tasks.


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This information is general in nature and is not intended to be legal, tax, or financial advice. Although Regions believes this information to be accurate, it cannot ensure that it will remain up to date. Statements or opinions of individuals referenced herein are their own—not Regions'. Consult an appropriate professional concerning your specific situation and irs.gov for current tax rules. Regions, the Regions logo, and the LifeGreen bike are registered trademarks of Regions Bank. The LifeGreen color is a trademark of Regions Bank.