Hiring Employees vs. Using Independent Contractors | Differences & More

Hiring Employees vs. Using Independent Contractors

Hiring Employees vs. Using Independent ContractorsAs the economy improves, managers are talking about how to fill staffing needs. As companies find they need additional projects completed, many are debating whether to hire employees or freelance workers, also known as independent contractors).

Here are some of the pros and cons to working with freelancers and employees:

Project Work

If your company has the need for a person to work on a short-term project, contracting with a freelancer may be the best option. Contract workers can help you complete projects with a set time-frame and scope. And when the project is complete, you do not have to find additional work for the individual to complete as you would an employee. Make sure, however, that the individual truly meets the criteria for being a contractor. In addition, a contract assignment usually requires a detailed agreement on what is to be accomplished and the deadlines by which the project should be completed.

On the other hand, if the project may evolve into a long-term assignment or have a lasting impact on the rest of your organization and staff, an employee may provide better stability, allowing management to have more of a say in the direction of the project.


Contract employees often specialize in one or two areas of work that your employees may not have. For example, if your business is looking to start a large social media presence, but doesn’t quite know how to get started, hiring a freelancer who specializes in social media may be the best solution for you. That person can then train company employees to work on the project long-term once the expertise is no longer needed.


Carefully consider the budget you have to spend on freelance work versus employee payroll. While going with a freelancer may seem like the less expensive choice, keep in mind contractors tend to charge higher amounts since you are not withholding taxes. In addition, determine whether your freelancer covers his own mileage and expenses, or if he expects to be reimbursed. Once you do the math, you may find that it’s more cost-effective in the long-run to hire a part-time employee.


According to the IRS and state labor boards, most businesses are not required to train independent contractors. A contractor should be able to start a project and complete it with minimal guidance. If you find the project does require a significant amount of training time (and you must pay for that training), consider hiring an employee so the training is not lost on a short-term project. However, if the project does not require training and needs to be completed ASAP, a freelancer may be your best option.

As you evaluate your future staffing needs, look at whether your needs are ultimately long-term and require an employee, or if a contractor is the best option. Either way, putting thought into the process ahead of time will save you time, money, and frustration down the road.


Whether you decide to hire employees, or go with a contractor, Patriot Software has payroll solutions for you. Our online accounting makes handling paperwork for contractors a breeze, and when you choose our Full Service Payroll option, our payroll services handle your payroll calculations and payroll tax remittance.

Updated from 10/12/12

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