The many ways of conducting business are continuously changing, with more and more companies hiring self-employed contractors to perform specific tasks remotely. This is beneficial to the employers because it saves them from having to take liability for employees while reducing overhead costs and other expenses. While employees benefit from the various incentives that come with the job offer, contractors enjoy more freedom and flexibility.
On the other hand, permanent employees don’t have to worry about their job security or retirement, whereas contractors must work hard to avoid unemployment. This poses the question: should self-employed contractors receive the same benefits as regular employees? The following guide will provide some insight on that matter.
Contractors vs. Employees
A contractor works independently for businesses and is not limited to only one employer. Mostly, contractors are experts in performing specific jobs and work on a project basis. They can work remotely, have flexible working hours, and charge based on the type of job they’ve been assigned. They don’t enjoy the tax breaks and other compensation benefits like permanent employees do. Generally, companies pay independent contractors on an hourly basis or based on the tasks. For example, a programmer may be paid for the number of hours they spend in coding, while an architect may be paid after the design is submitted.
An employee is someone who is hired by a company to carry out specific duties, given a fixed salary and is required to work from an office location. Employees are entitled to benefit plans, retirement plans, job security, and their taxes and insurance are covered by the employer. An employee’s job responsibilities, office timing, and base salary are controlled by the company/employer. They have to follow the company’s rules and regulations and have their taxes deducted or withheld by the employer. Employees need to be registered by filling out forms that confirm their identity and unique identification numbers. A company is responsible for paying taxes to the government on behalf of its employees as well.
All About Compensations
An employee can be rewarded by the company for meeting their goals and for other achievements in the form of monetary rewards, incentives, or commissions. A company compensates its employees by paying some of their taxes, offering them insurance coverage and commissions, and by providing them with various other benefits. In America, laws strictly require a company to file forms specifying its employees’ base salaries and other details. Workers in the state of Arizona can freely approach an Arizona worker’s compensation attorney if they don’t receive the full benefits they are entitled to.
Compensations act as incentives for employees to perform better, which in turn, churns profit for the business. It is a great way for both established companies as well as start-ups to motivate their workforce to work hard.
Contractors and Compensations
Since self-employed contractors work on a project or task basis, employers don’t need to worry about handling their social security, medical care, or even unemployment. Although this may sound disadvantageous, contractors have the flexibility of working for multiple employers at a time.
Since the contractors are not completely governed by the policies and regulations of a company, they have more freedom to earn extra money in other ways. However, since there are no taxes or health insurance benefits provided by the company, the contractors must keep track of all their financial records because all the income they receive is taxable. Paying taxes and keeping an account can cause inconvenience but neglecting to do so may result in heavy penalties.
Should Contractors be Compensated too?
Compensation is a proven way to attract, motivate, and retain workers. Contractors should be compensated as well since such incentives inspire a sense of competitiveness within workers and they are more willing to put optimum efforts into their respective tasks.
One way to compensate independent contractors is by variable pay programs, wherein the employer increases the pay for achieving milestones and completing work prior to deadlines. To increase profits in the long term, businesses should even compensate contractors for completing more tasks in less time.
The cost of outsourcing work to a self-employed contractor might just prove to be cheaper and more beneficial for the company compared to the cost of hiring a permanent employee (inclusive of insurance, tax, base salary, and commissions). This is due to the greatly reduced overhead charges of hiring remote workers. To put it simply, it is safe to say that compensating contractors like regular employees is not a bad move for any business.