As a result of the on-demand economy and the number of new start-ups, there has been more interest in hiring freelance and contract workers. Over the past few years, there has been an increase across nearly all industries. Not only does it give companies more flexibility, but it allows them to quickly and relatively inexpensively fill both short- and long-term gaps in staffing.
This has also resulted in a number of companies running into issues with the Department of Labor. Within the Fair Labor Standards Act of 2015m, there is a detailed explanation of what defines an “employee.” Companies may – knowingly or unknowingly – miscategorize some of their workers as independent contractors. However, per governmental guidelines, these individuals could actually need to be classified as employees, which means that they are due to more rights and benefits.
Organizations could choose to classify groups of workers as contractors in order to lower the associated costs of having an employee, which can be significant. On average, companies will pay around 25% more an hour, in order to cover the individual’s taxes, insurance, and paid time off. With the additional costs being so substantial, it is no wonder why so many companies have received significant penalties for this misclassification.
Of course, you will want to take the appropriate steps so that you can avoid any potential fines or fees. But there are also some additional benefits from hiring employees as opposed to independent contractors or freelancers. Consider the following:
Easier management and oversight
One of the big distinctions about contractors is that they do not have the same requirements to follow certain organizational rules. For example, when it comes to things like hours in the office, dress code, and even behavioral conduct, it can be far more difficult to control a contractor.
Higher retention rates and company loyalty
This benefit of employees over contractors should come as no surprise. When you work with contractors on a limited or as-needed basis, you can generally assume that they always have one eye out for new work. This means that turnover rates and training costs tend to be higher.
Better Workplace Morale
A higher turnover rate means that your team is not getting to build the same lasting and trustworthy relationships as they would with full-time employees. In fact, if individuals know that they are all contractors, they might not even worry about getting to know one another. Productivity and overall work quality can suffer as a result.
Navigating these waters can be confusing. Should an individual be classified as an employee or a contractor? If you are unsure, it is always better to speak with someone versed in these legal requirements. Doing so can help you avoid penalties and fines.