The foremost challenge for employers looking to hire freelancers or traditional employees is the performance difference between freelancers and employees.
Furthermore, is the difference significant enough to consider one over the other?
Freelancing has opened a new path for working individuals looking for financial independence globally. Many freelance positions are popping up across industries, with more companies adapting to the trend and hiring a blend of freelancers and full-time employees.
According to Forbes, almost 90% of big companies believe freelancers are essential to their workforce. This article will explore the job classifications and the difference between freelancers and employees. We’ll also dive into the pros and cons of both freelancers and full-time employees.
Is a Freelancer an Employee?
When discussing the difference between freelancers and employees, the employer must clearly define the employment status based on an employee's or a freelancer's employment relationship with their employer. Moreover, there are significant differences between the taxation of employees and independent contractors.
Primarily, three aspects are examined in an employment relationship for accurate classification. These aspects are financial control, behavioral control, and relationship control.
Freelancers vs. Employees: Difference Between Freelancers and Employees Working Full-time
Here, we have listed all the core differences between freelancers and employees working full-time.
- Permanency: A freelancer delivers a specific job within a set period. Since freelancers are independent contractors, they don’t sign any written agreement or contract with employers permanently.
However, full-time employees must sign an employment contract with defined terms and conditions intrinsic to a permanent position. Hence, full-time employees have a longer tenure and higher job security than freelancers.
- Employment taxes: This is a vital difference between freelancers and employees. Before paychecks are released, employers must take charge of their employees’ taxes. They deduct a certain percentage of the employees’ salary as tax which usually includes social security and medicare tax.
Contrarily, self-employed individuals pay personal income tax and self-employment tax.
- Employment benefits: Another significant difference between freelancers and employees is that unlike full-time workers, freelancers don’t enjoy employment benefits. They don’t get paid vacations, maternity leave, annual leaves, etc. While full-time employees are entitled to medical insurance and retirement benefits, freelancers are not.
- Payment terms: Freelancers set rates for specific services. A freelancer may demand a higher rate than full-time employees, but they work only for a limited duration. Employers offer a fixed annual salary and benefits to a candidate.
- Working hours: The working hours of freelancers and employees differ. While full-time workers usually work regular office hours, freelancers work according to their convenience. As an employer, you have no control over how and when a freelancer works.
- Cost differences: Some freelancers are undeniably expensive, earning hundreds of dollars every day. So, does that mean freelancers are more costly than full-time employees? While that may be so in some cases, the employer decides their assignment and duration with freelancers. Thus, freelancers are excellent for projects with greater flexibility and experimental potential.
For employees, an organization must shell out a significant portion of its monetary resources on their salaries, benefits, and other perks. Thus, the cost differences between freelancers and employees could be stark.
Pros of Hiring Freelancers
Following are the benefits of hiring independent contractors or freelancers:
- ~Reduced costs: Having workers who work remotely significantly reduces the costs of having an office premise and maintaining staff. Also, employers need not offer additional benefits and perks (like retirement benefits, health insurance, social security, etc.). So, even if the freelancer is expensive, the overall cost decreases substantially.
- ~Reduced risk: A majority of businesses recruit freelancers on a project-by-project basis. Because freelancing is not a full-time job, an employer can cancel their deal with the freelancer if they fail to perform well. It is beneficial in states where freelancers or at-will employees benefit from exemptions under state laws. Thus, employers are at a reduced risk of making drastic personnel changes if they hire freelancers.
- ~Simple hiring process: Various online freelance platforms make hiring freelancers a breeze. With a limited budget, you may discover IT professionals, marketers, designers, assistants, academics, writers, accountants, and other professionals who work as freelancers. The approach is quick and saves money over a traditional hiring process. Furthermore, since there are no geographical restrictions, you can hire skilled freelancers worldwide.
- ~Industry-standard quality: Today's abundance of freelancers has made it increasingly necessary to maintain a high-quality standard to gain clients. Naturally, freelancers strive to deliver excellent service to their clients to build a recommendation-worthy professional reputation.
- ~Connections: Generally, experienced freelancers have a vast network of meaningful connections. You’d be astonished at how much a freelancer with an established network can accomplish for you at a fraction of the cost. For instance, if you hire a content writer, they might refer a seasoned graphic designer for your project.
- ~Access to the best-in-class talent: Today, many freelancers are highly skilled specialists with years of industry experience. So, if you choose wisely, you might just land a commendable freelancer who can create value for your firm!
Cons of Hiring Freelancers
Here is the downside of hiring freelancers:
- ~Challenges in establishing company culture: Establishing a company culture with independent workers is often challenging due to the lack of adequate supervision. While freelancers might work with you for longer terms, they are usually not wholly invested in your company’s success. Their main goal is to maximize their earnings.
- ~Unavailability and unresponsiveness: Freelancers’ working hours and time zones might differ from yours. Unlike full-time employees who report to the office within a set time, freelancers don’t need to do so. Instead, they work at their preferred time. Hence, hiring freelancers is not a wise option for time-sensitive work that requires them to be at your beck-and-call.
- ~Lack of effective communication and management: While hiring freelancers is cheaper on average, it could cost you more in the long haul if your remote team isn't managed well. Hence, to maintain a smooth workflow, employers must hire a project manager to monitor all employees, whether working full-time or at will. A lack of communication between you and the freelancers will adversely impact your projects.
Pros of Hiring Full-time Employees
Following are the benefits of hiring full-time employees:
- ~Loyalty: Full-time employees are generally more loyal to their organizations. They have a sense of job stability while receiving numerous perks from their employers, like health insurance, retirement benefits, etc. In addition, when employees see that employers are invested in their growth, they perform better.
- ~Cost-effective: The upfront cost of hiring employees might be expensive, but it pays off well in the long run. Happy and satisfied workers are highly productive and motivated. Hence, a happy workforce can drive your company towards success.
Cons of Hiring Full-time Employees
Here are some disadvantages of hiring traditional full-time employees:
- ~An average workweek of 40+ hours: Full-time employees typically must work for at least 40 hours per week. Working day-in and day-out in a fixed routine can get monotonous quickly, thereby hampering employees' productivity and mental health.
- ~Greater requirements for employee training: Employers must regularly invest in employee training and upskilling if they wish to stay ahead in the game. Employee onboarding, orientation, and training are some mandatory costs that companies must incur at regular intervals. This is not required for part-time employees or freelancers.
- ~Increase in labor costs: Full-time employees cost more in payroll because they work more hours over a long tenure. So, if you hire a full-time employee, make sure that they provide a considerable return on investment for the company. If not, you’re overpaying for a resource that doesn’t create value for the organization.
We hope now you have much better clarity on the difference between freelancers and employees. While each has its unique advantages and disadvantages, employers can reap optimal results if they know how and when to employ freelancers and full-time employees for case-specific tasks. The hiring decision ultimately depends on an employer’s requirements and the resources they are willing to spend on a professional.
At Multiplier, our experts offer sound suggestions on how to run your business smoothly, whether you hire independent contractors or full-time employees. From employee onboarding and PEO to compliance, we’ll guide you through everything when you want to expand your venture to a foreign country.
Do freelancers count as employees?
A freelancer is a self-employed individual who has full control over where they work and for how many hours. Freelancers might not have employers, but they outsource work for different clients and projects. Furthermore, freelancers pay their income tax, known as self-employment tax.
Are freelancers hired on the payroll?
Payroll expenses are overhead costs, such as worker’s compensation, additional benefits, etc. A freelancer is not an employee but an independent contractor. Thus, freelancers are not paid through payroll. For freelancers, employers don’t have to pay or withhold payroll taxes.
Freelancers vs. employees: Which is better?
There is no specific answer to the question. Whether you should hire freelancers or full-time employees depends on your requirements. If you are a small company with a small budget, freelancers might be better. In contrast, full-time employees might be a better option if your business grows.