/ BLOG

Employee vs. independent contractor – What’s the difference

Hiring staff to help with your business can be an involved process when it comes to selecting what options are going to suit your business best. Two of the common types of staffing options are choosing between independent contractors or employees. In our guide we share some of the key differences and the things your business needs to consider when hiring new workers.

Employee vs independent contractor

Let’s look at the main characteristics and features of these two popular types of working arrangements.

Payment

Employees – employees are paid usually in the following ways, depending on what arrangement has been put in place. The payment may be for the hours the employee has worked, on a price per item or activity basis or via commission.

Independent contractors- contractors are paid based on the quote that was given and the work delivered. Some contractors may work out their quote based on the number of hours required to complete the job.

Equipment to get the job done

Employees – As an employer you need to provide your employees with the tools and equipment they are required to correctly perform their job.

The other option is for the employee to bring their own tools and required equipment and you provide an allowance or reimburse them for the costs.

Independent contractors – in this scenario, independent contractors usually provide their own tools and equipment to the job. As they are not employed by your business you do not need to provide an allowance or reimbursement of costs.

Subcontracting and delegating work

Employees – because the employee is directly employed by your business, they do not have the power or flexibility to delegate, outsource or subcontract their work to anybody else.

Independent contractors – contractors have the freedom to delegate/ subcontract and pay someone else to do the work.

Independence

Employees- working as an employee means the worker is directly representing your business and is not entitled to operate independently from your business.

Independent contractors- operating as a contractor means the worker is representing their own business and they have the freedom to accept and refuse jobs.

Employee or independent contractor, what is going to suit your business?

Every business has their own unique needs, niches and set-ups, so that’s why it is important to explore all the various options to figure what is going to be suitable for the success of your business.

Here we take a look at some of the pros and cons of employee and independent contract workers.

Pros of hiring an employee worker

  • You can build a long-lasting team. Having employees means they are part of the business and usually there for the long haul. This can help to build trust and loyalty within your business.
  • After being part of the business for some time, your employees quickly learn the ways of your business and become a rich source of knowledge. This knowledge is invaluable when it comes to needing the expertise to quickly get something done and to help with training new staff.
  • If other staff take holidays and breaks you can reassured knowing you have employees there to step in and 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, especially if you need to purchase specialised equipment and tools.
  • There’s always the chance that you may hire someone who is appropriate for your business. This can cause issues within your business that are not always easily fixed and can take time.

Pros of hiring an independent contractor

  • While the cost per hour may be higher, overall the costs of hiring a contractor may work out to save you money. Unlike an employee worker, you don’t need to consider things like providing training, annual and personal leave, and purchasing the required tools and equipment.
  • Hiring a contractor may suit the flow of your business. You may need the flexibility to hire more workers during a busier period of your business and this is where independent contractors can help ease the load.
  • You 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 at hand. This saves you a lot of time to get on with other aspects of running your business.

Cons of hiring an independent contractor

  • Independent contractors can sometimes be working on multiple projects for other clients, so there isn’t always going to be the same kind of loyalty you would experience with an employee worker.
  • Independent contractors have more freedom when it comes to the hours they work, what jobs they accept/decline etc. This can sometimes make it difficult when it comes to communications and managing projects.

What about insurance?

There are a few things to consider depending on which kind of worker you decide to go with for your business. Either way, ensuring that you have your business insurance up to date and in place is going to save a lot of dramas if a claim were to happen down the track!

If you decide to hire employees, then 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 at your business. Being upfront and 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 which should also outline the level of cover they have.

Need help with getting your small business insurance sorted? Help is only a mouse-click or phone call away with BizCover. We look after all types of small businesses and their insurance needs. If you are after a quote for a new policy or need to make some changes to an existing one, get in contact today and experience insurance with no dramas!

* This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording.

Compare multiple quotes online in minutes

Compare FREE quotes

Compare multiple quotes online in minutes

Trusted by over 220,000 Australian small businesses.

Compare FREE quotes

Popular Searches