Employee vs. independent contractor – What’s the difference

Hiring staff to help with your business can be an involved process. One of the decisions you will need to make is whether to hire employees or independent contractors for the roles you need to fill. In this guide, we’ll take you through some of the key differences between hiring employees and independent contractors and the things your business needs to consider when hiring new workers.

Employee vs independent contractor

What are some of the key differences between an employee and an independent contractor?

Payment

• Employees: Employees are usually paid an hourly wage or are paid a fixed salary. Employees are generally entitled to overtime and paid leave.
• Independent contractors: Contractors are normally paid based on the quote that was given and the work delivered, either per hour or per project.

Equipment

• Employees: As an employer, you need to provide your employees with the tools and equipment they are required to correctly perform their job. Alternatively, you may choose to provide an allowance or reimburse employees for the cost of tools.
• Independent contractors: They usually provide their own tools and equipment for the job.

Independence

• Employees: Working as an employee means the worker is directly representing your business and is not entitled to operate independently.
• Independent contractors: Operating as a contractor means the worker is representing their own business and they have the freedom to accept and refuse jobs.

Pros and cons of employees and independent contractors

What are some of the benefits and disadvantages between hiring employees or hiring independent contractors?

Pros of hiring an employee

When you hire a permanent employee, you have the opportunity to build a long-lasting team which can also allow you to create a thriving work culture.

When an employee is hired on a permanent basis, there is the expectation that they will stay with your business for some time. When an employee has been with a business for a certain period of time, they become a rich source of knowledge. This allows them to provide great levels of customer service (if your business works with customers) or to build strong, ongoing relationships with suppliers and other third parties. That strong knowledge base can also be important when training new staff.

In addition, if you or other staff member take a holiday, you can rest assured knowing you have employees there to keep your business going.

Cons of hiring an employee worker

It can be more expensive to have employees as workers for your business. You need to invest in your staff, and this is a cost that can quickly add up considering equipment and tools. Consider your long-term business needs and whether you have the budget to hire employees instead of contractors to perform certain roles.

Pros of hiring an independent contractor

Hiring a contractor may save you money. Unlike an employee, you don’t need to consider things like providing training, annual and personal leave, and purchasing the required tools and equipment. A contractor should already have the necessary tools required for the job, and they are not entitled to the same benefits as an employee.

In this way, hiring a contractor may suit the flow of your business. You may need the flexibility to hire more workers during a busier period and this is where independent contractors can help ease the load. Then, when business slows down again, you don’t need to worry about the additional cost of employees you no longer need.

When hiring independent contractors, you also don’t need to be as involved with the management process. With independent contract workers, you can give them the brief and let them get on with the job.

Cons of hiring an independent contractor

Independent contractors can sometimes be working for other clients, so there isn’t always going to be the same loyalty you would experience with an employee. This can sometimes make it difficult when it comes to communication and managing projects.

What about insurance?

Whether you choose to hire employees or independent contractors, there are a few things to consider. Either way, ensuring that you have your business insurance up to date is going to save you a headache if a claim were to happen.

If you hire employees, you may want to revise your existing business insurance policy. One of the questions asked when establishing your policy is the number of employees you have. Updating this information can help ensure your policy is providing adequate cover.

If you go with hiring an independent contractor, you may want to check what insurances they have in place as well as the level of cover. Be sure to also request proof of insurance.

Need help with getting your small business insurance sorted? You can compare multiple quotes from selected leading Australian insurers in minutes, online or over the phone.

For on the go cover, go BizCover.com.au or call 1300 805 821.