Apr 08, 2025

Staff Versus Freelance: Nontax Issues

Deciding whether to hire a staff person or a freelancer should be influenced not just by IRS regulations, but by the kind of work to be done and how you want the worker to fit into your company. Read through to read more about the considerations.

These days, there are many ways to fill open positions at your company. The global workforce includes freelancers (also known as gig workers or independent contractors) as well as permanent employees; many freelancers are equally talented but less expensive overall to hire than permanent workers. Some businesses use a mix of freelancers and employees, in-person and remote workers, local and global jobholders. What benefits and challenges present themselves in choosing any of these options?

Hiring freelancers

Hiring freelancers comes with many benefits:

• You can hire freelancers more quickly, saving on recruitment and hiring costs. An Investopia article reports that the average cost to hire a permanent employee is around $4,700. It takes up to six months to break even.
• You pay freelancers by the hour or project, saving money on benefits, bonuses, overtime and paid time off, as well as on unemployment insurance, workers' compensation costs and the employer's share of FICA. A survey by Upwork and the Freelancers Union found that firms save 20%-30% by hiring freelancers instead of full-time workers.
• You can recruit specialists in different subject areas from around the world, especially through online freelance platforms. This can be especially beneficial for small business owners.
• Freelancers can be onboarded quickly, allowing you to meet tight project deadlines and manage workload spikes. A Harvard Business Review study found that hiring freelancers helps businesses improve speed to market.
• Freelancers can add skills diversity to teams.
• Freelancers are generally responsible for their own training and professional development, which represents another cost savings for your company.

However, hiring freelancers is not without challenges:

• Integrating freelancers into your company's culture and ethos can be difficult. Because freelancers do not have an onboarding process, it can take time for them to understand team dynamics and company processes.
• While freelancers generally stand by the quality of their work, they don't usually have the same interest in your company's success as employees do. Because they are not going to be employed for the long term, they don't have skin in the game.
• Freelancers tend to work with multiple companies and often have access to internal intellectual property, data repositories and process documents. To ensure data security, you should always outline in contracts your company's ownership rights and lay out data security guidelines.
• Coordinating projects can be challenging due to time zone differences and even language barriers. Your freelancers may take longer to respond to urgent requests.
• If your company is committed to diversity, you should be aware that there's a stark gender pay gap in the gig economy; men make 48% more than women.
• The IRS takes an active interest in whether your company has hired freelancers appropriately for a position.

Hiring employees

Among the benefits of hiring permanent employees:

• Regular and consistent work results in more productive and loyal employees who are better integrated into your company's culture.
• Employees more readily embrace teamwork and collaboration because they have a shared sense of purpose.
• It is easier for you to manage each person's work schedule and to mentor them.
• Many employees grow into brand ambassadors for your company, passing on their knowledge to newer employees and developing strong client relationships.
• You can nurture some employees for future leadership opportunities.

The challenges with employees:

• Employees often expect benefits and pensions, all of which are costly. You must also comply with regulations regarding paid time off, unemployment insurance, workers' compensation insurance and FICA. You must provide employees with onboarding and training. You will have to have office space for them or cover some of the costs of a home office.
• You will have legal obligations through labor and tax laws relative to wages, hours and termination.

In weighing the pros and cons between hiring freelancers and staff, you might consider hiring freelancers when your focus is on short-term tasks requiring specialized skills not available in-house, while employees might be seen as ideal for the projects that require cross-functional collaboration that provides stability and sustainability for your company's core business. Freelancers can hit the ground running and plug gaps. Employees have an implied commitment to the long-term health of your company.

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