Since 2020, there’s been a surge in the number of companies hiring independent contractors. Although the trend was on the upswing before the pandemic, the increased acceptance of remote work has more people considering the potential of freelance work—and a growing number of companies are embracing the idea of a more independent workforce.
Still, there are challenges and risks associated with relying on a team of freelancers, and your company may wish to transition talent from a contractor to a full-time role. Recruiting individuals who are on the fence about whether it’s better to be an independent contractor or a full-time employee in this market can be a challenge, so we’re here to help you make a compelling case.
Pros and cons: Is it better to be an independent contractor or employee?
Benefits of working with independent contractors
From an employer’s standpoint, contract work offers multiple advantages. Freelancers make it possible to hire for specific projects and stay within budget and time constraints. Contractors also provide their equipment, cover their expenses, and pay their taxes. Companies do not have to offer benefits to contractors, either, which can potentially save money.
Working with contractors also increases the pool of talent that companies can draw from. Given that employee turnover is at an all-time high, hiring independent contractors gives a company access to a larger and deeper pool of skilled professionals, without the overhead costs associated with recruiting and retaining full-time employees.
Drawbacks to relying on contractors
However, there are risks to relying on a pool of freelancers. Employers do not have the same level of control over an independent worker as they do over full-time employees. Legally, companies cannot specify the hours that a contractor works or how they perform their work. Because of this, contractors may not be available when needed. This can create uncertainties about whether you’ll have the staff you need when you need it, and make it more challenging to complete work on short notice.
Maintaining a team of freelancers also requires more time and resources. Although freelancers can close the talent gap, relying on an independent workforce requires ongoing recruitment and hiring. Maintaining compliance is also an ongoing challenge. Misclassifying an independent contractor, even inadvertently, can lead to significant tax implications and sanctions.
What contractors need to consider
Freelancers enjoy many advantages. Having the flexibility to choose projects and clients, set their hours, and take time off whenever it is convenient is appealing to those who are unwilling or unable to work a traditional 9 to 5 schedule.
Freelancers also typically have the power to set their rates, which can increase their earnings well beyond what a full-time position can pay. That said, contract workers often have to hustle for their next gigs, and there may be times when projects come in slowly. Without a steady flow of contract work, a freelancer's income will fluctuate, which can be stressful. They are also responsible for their record-keeping and accounting, which includes managing their taxes.
Transitioning to a role as a full-time employee can ease some of these financial stresses since it ensures a steady, predictable income. Taxes are paid via payroll, reducing the record-keeping burden and stress of a quarterly tax bill. Full-time employees also have access to benefits like paid time off, health insurance, retirement plans, and flexible spending accounts.
Having the discussion: contractor to employee
While a robust freelance workforce has its advantages, transitioning top talent into full-time employee roles can benefit both the freelancer and the company. Many contractors are working independently as a stopgap between opportunities and will welcome the chance to become full-time employees again. Shifting away from a contract work arrangement also helps prevent misclassification and its consequences.
It may not always be an easy sell to an experienced freelancer, though. Contractors are not obligated to accept an offer of employment, and an active contractor with multiple clients may be reluctant to switch to an exclusive employer. However, there are a few tips that will help increase the likelihood of an acceptance.
Make a compelling offer
A successful contractor is going to need incentives to make the jump from working for themselves to working for someone else. Your offer needs to balance the freedom and flexibility of freelancing with the security of full-time work. A competitive salary is only the start. Your offer package must include incentives, like the option to work remotely, paid time off, a budget for career development, and wellness benefits to compensate for less flexibility.
Be prepared to negotiate
Moving into full-time employment is a major shift for an experienced contractor. They will likely have a list of requirements that will entice them to make that change, so be prepared to negotiate your offer to secure their commitment.
Clearly define the position
Any job offer needs to clearly outline the role’s responsibilities and job duties. If the contractor will be doing different work as an employee, this must be made clear. Any additional responsibilities or requirements, such as signing a non-compete agreement, must be clearly laid out as well.
Have a backup plan
There is always a chance that the contractor will not accept a full-time job offer. Before you make the offer, know what your next steps will be if they decline. If the individual is still under contract with you, you cannot terminate their contract in violation of its terms or in retaliation for declining the offer.
Transitioning talented independent contractors to full-time employees can help your company achieve its goals and become more competitive. Although many freelancers are happy working for themselves, the security that comes with a steady paycheck and benefits is compelling. Approaching a contractor with a competitive offer and reasons for making the transition ensures greater success in recruiting a valuable team member.
Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
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