Choosing Between Freelancers and Employees: A Guide for Business Success

Picking between freelancers and full-time employees isn’t just about cost and convenience for your business and workers.

Adopting the right work format depends more on the nature of tasks, timelines, criticality of projects, and customer expectations. It’s really all about what works best to achieve your business goals.

And maybe it doesn’t have to be a binary choice, either. For instance, more and more workers are taking up ‘side gigs’ — moonlighting while retaining their full-time jobs.

Thus, organizations must balance business needs with worker preferences to pick between freelancers and employees. In this article, we’ll take a look at the advantages and disadvantages of both.

Work-life integration and finding the right mix

JP Morgan’s Midyear Business Leaders Outlook clearly states that labor shortage is among the top external threats for firms, and companies are struggling to find the skilled talent they need.

Further, today’s workers prefer remote work, with 98% desiring it at least part time. This flexibility is emerging as a key employee benefit today. As per the Return to Workplace Report, 63% of employees believe flexibility empowers them.

So work-life integration is emerging as the new work norm. Instead of the strict separation between 9-5 jobs and leisure time that comes with ‘work-life balance’, today’s workers seek autonomy in deciding when to, what to, and where to work. Work and life melt into each other, resulting in work-life integration.

Businesses, on the other hand, are turning to a global workforce to harness cheaper yet talented professionals. They employ gig workers or freelancers, permanent employees, or a mix of both to fulfill business needs.

So how can organizations decide if freelancers, permanent employees, or a mix of both are right for their business? What benefits and challenges do these talent segments bring? And how can companies use technology to manage and empower them?

Benefits and challenges of hiring freelancers

A NASA representative told the Human Cloud Podcast that the gig marketplace, of which freelancers are a part, offers the “latest and greatest skills”. Even the World Bank attests to the growing popularity of freelancers. It estimates the number of freelancers at 1.57 billion out of a total global workforce of 3.38 billion.

Benefits

Hiring freelancers bring several benefits to organizations:

• Reduced costs: You hire freelancers faster, which saves recruitment and hiring costs. You also save costs in training, salaries, bonuses, life insurance, and statutory benefits like social security and paid time-off.
  Moreover, freelancers are paid on an hourly or fee basis. A survey by Upwork and Freelancers Union found that organizations save an average of 20-30% by hiring freelancers over full-time workers. As per Investopedia, the average cost to hire a permanent employee is close to $1,500, which can take up to six months to break even. So relying on freelancers can be cost-effective.
• Access to global talent pool: Freelance platforms allow you to recruit specialists in different subject areas from around the world, depending on project needs. Even Google is leveraging this global talent; it has more freelancers than regular full-time workers.Most hiring managers hire freelancers as it’s the only way for them to use specialized expertise. Reuters found that 93% of small-business owners reported receiving few or no qualified applications for positions, owing to lack of skilled talent. This can be overcome by fishing across borders for talent.
• Flexibility to scale operations: Freelancers can be onboarded faster to meet tight project timelines and manage workload spikes. Your projects are also completed faster. A Harvard Business Review study has found that hiring freelancers helped businesses improve speed to market.

With freelancers, you can build teams with diverse skill sets to cater to a global market. Freelancers also experience high levels of job satisfaction with an average rating of 4.1 out of 5 and may rake in a considerable income.

Challenges

Hiring freelancers comes with its own set of challenges though. For instance, there’s a stark gender pay gap, with men making 48% more than women in the gig economy.

Other hurdles include:

• Alignment with goals: It’s more difficult to integrate freelancers into the company ethos, values, and vision. They make take time to understand team dynamics and company processes.MIT Sloan Management Review points to executives struggling to manage both permanent employees and freelancers as they have different employment arrangements. With freelancers, you may also face accountability issues as they don’t usually have their ‘skin in the game’ when it comes to your success.
• Data security concerns: Freelancers may work with multiple companies at a time, with access to their internal intellectual property (IP), data repositories, and process documents. To ensure data safety, you must outline ownership of IP rights and lay out data security guidelines in contracts.
• Communication issues: Coordinating projects can be challenging owing to time zone differences, heavy workloads, and language barriers. The dispersed nature of the freelance economy also makes it difficult to communicate with workers on a single platform. They may also take longer to respond to urgent requests owing to a lack of commitment.

Benefits and challenges of hiring permanent employees

Despite the popularity of the gig economy, companies continue to hire full-time employees. According to Adam Roseman, CEO of Steady, full-time work results in more productive and loyal employees.

Benefits

Having full-time workers helps you build:

• Consistency and better cultural integration: Employees more deeply resonate with company culture. They readily embrace teamwork and foster collaboration owing to a shared sense of purpose. It’s easier to manage their work schedules and mentor them. Also, many employees grow into brand ambassadors of your company by actively sharing a positive image with their families and peers.
• Long-term commitment: Employees are more loyal to the company. They accumulate institutional knowledge specific to your company and industry, and pass it on to newer employees. This ensures organizational sustainability during economic uncertainties.
  You can train employees for skills relevant to their roles and business. With a ready pool, you can spot and nurture certain employees for future leadership opportunities.
• Better client relations: Employees feel more strongly about your customers than freelancers, whose focus is more on building their own brand. Sarika Lamont of Avantus Federal told Forbes that employees were better connected to the organization, its culture, and solutions. Sarika says, “Their priority is to leverage that knowledge to develop strong client relationships to contribute to company success.”

Challenges

Yet, there are several challenges of relying entirely on permanent employees:

• Financial obligations: Joe Hadzima, a lecturer at MIT, believes that the actual cost of your employees are between 1.25 to 1.4 times their base salary. Employers pay several benefits to employees like insurance, time-offs and even pensions. They also cover social security in some countries.
  Add to this the onboarding and training costs, as well as office space costs to accommodate employees. Further, organizations must also hire trainers, HRs, and finance professionals for employees.
• Legal obligations: You also have to comply with labor and taxation laws relating to wages, hours, and termination. And these differ across regions, which may complicate compliances for a global workforce. There are litigation risks associated with disgruntled employees too. You’ll need a one-stop platform to take care of all your compliance needs.
• Reduced flexibility and work-life balance: Most organizations can’t offer their employees the flexibility to choose tasks, decide timelines, or the location of work. Too much emphasis on processes and normative behaviors may lead to frustration and burnout. According to studies, full-time workers are more stressed owing to deadlines and project goals.

Freelancers or permanent employees: What’s right for your business?

Usually, organizations pick freelancers when their focus is on short-term tasks requiring specialized skills not available with the in-house team. According to John Winsor and Jin H. Paik of Harvard University, embracing the open-talent model can lead to a “greater ability to flex with demand” and “faster and more efficient work”.

Here are few scenarios suitable for hiring freelancers:

1. Short-term projects: Freelancers are suitable for needs-based projects with defined timelines and clear deliverables. These projects are one-off and of minimal strategic value. In fact the Harvard Business School has found that small and midsize companies are increasingly exploring on-demand workforce on a cost-effective, project basis.
2. Specialized skill set: When your employees lack skills to complete a required task or are engaged in more strategic roles, you may employ freelancers by tapping into the global pool. For example, you may hire a developer for your growing business to design your website.
3. Cost-effective: If you’re scaling in a cost-conscious way, freelancers could come handy. This helps you avoid paying overhead expenses and employee benefits that come with hiring employees.

Full-time employees are better suited for organizations focusing on long-term projects that require consistency in people and processes. Here’s when you must consider hiring full-time employees:

1. Long-term projects: Employees are ideal for projects requiring cross-functional collaborations, transfer of institutional knowledge, and a deep awareness of a company’s product and goals. They provide stability and sustainability.
2. Critical functions: Organizations must man core business functions like product development or customer relations, which require direct supervision, with its employees. As full-time employees are relatively more loyal and aligned closer to a company’s goals, they are better suited for such tasks.
3. Company culture: Employees practice and reinforce the company culture and values through their work and relationships. Strengthening the culture assumes importance during rapid workforce expansion and instabilities like layoffs, economic downturns, or natural calamities. Then, long-term integrated employees offer a sense of security and continuity.

So what do you need?

Need	Freelancers	Employees
Project duration	Short-term, well-defined projects	Long-term, complex projects needing agility
Skill set	Specialized skills not easily available internally	Critical roles requiring deep company knowledge
Leadership style	Low supervision	Close monitoring and frequent communication
Cost efficiency	Lower upfront costs	Higher costs of salaries, benefits and training
Company culture	Low integration, easily dispensable	Contribute to building and sustaining company culture

Some other factors to consider

While the relative benefits discussed above cover the most usual choices businesses have to make, we also identified some other factors that may determine the type of employee you need.

• Business goals: Your strategic vision and goals must drive your employment model. For people-first and customer-oriented companies, hiring full-time workers is always preferable. But for rapidly scaling companies hoping for quick turnaround, freelancers can offer value.
• Pilot projects: Consider conducting a pilot project first if you’re planning to employ freelancers for a complex project of high business value.
• Build relationships with freelancers: Rely on reputed platforms to hire freelancers and cultivate a working relationship with them. Re-hire them for future projects to leverage their existing knowledge about your company.
• Hybrid model: Using a mix of freelancers and permanent workers can help you attain multiple objectives. In a marketing team, for instance, you may hire a full-time content team head with freelance writers.

An article in Forbes suggests that a blended team can benefit both freelancers and full-time workers. According to the article, “Full-time employees are able to grow in multiple capacities with the support of freelancers and freelancers have the opportunity to collaborate and grow with a team.”

Deloitte believes that modern organizations are moving towards a new operating model that places skills, more than jobs, at the center. To ride this shift, organizations are hiring for skills. But they must nurture a workforce mix of freelancers and permanent employees to thrive in this context.

One solution for all

Whether you plan to hire and manage freelancers or full-time workers or both, Multiplier lets you take control on a unified platform.

You can offload responsibilities that come with hiring — onboarding, compliance, and contract drafting — to the platform. Focus more on your business and rely on Multiplier’s on-ground legal expertise and 24/7 customer support.

Multiplier empowers your workforce management by:

• Hiring globally: Tap into a global pool of freelancers and employees without opening local entities. Create multilingual contracts and comply with local labor and tax laws.
• Running payroll: Pay workers in local currencies, even multiple times every month, without increasing payroll administration. Bring payroll management of freelancers and employees onto a single dashboard. Let Multiplier take care of tax withholdings and deposits based on local laws. Link payrolls with timesheets, expenses, and your HR system.
• Paying freelancers on time: Take a quick assessment on Multiplier to classify a freelancer correctly and draft compliant contracts. Pay multiple freelancers in one go by scheduling payments.
• Offering benefits: Select from a range of localized and compliant insurance packages for the global workforce. This will cut the need for country-specific vendors.
• Managing expenses: Regardless of your employees’ location, manage their expenses and reimbursements on the platform.

Tap into the global pool of freelancers and full-time employees.

Speak to Multiplier today!