In this crazy economy employers may be asking themselves what are the benefits of hiring an independent contractor as opposed to a direct employee. This is an important decision for business owners because there are many considerations, below illustrates the benefits of hiring an independent contractor.

• Reduced Benefits Costs: The cost of benefits such as vacation, sick leave and retirement plans is eliminated. The most dramatic saving being in health care, on average in the United States it costs approximately $6,000.00 per year to provide health insurance for a single employee. This may vary slightly given the employee age and pre-existing medical conditions yet remains one of the greatest costs associated with direct employment.

• Reduced Overhead: Elimination of payroll taxes, expenses and other overhead. Of special note there is also a somewhat hidden cost to firing or laying off employees that many employers are not aware of. Each time an employee is fired or laid off-your “experience rating” with employment security increases. What this means to the employer is that for every employee that is discharged, their tax rate for unemployment benefits increases for all remaining employees.  Some positions may also offer telecommuting which is of further benefit as there are no additional costs for space or equipment such as additional computers.

• Business Costs Only Increase During Growth: With an “on demand” contractor the employer is only paying for services if and when they need them. This allows for flexibility during growth periods in their business which is of great importance to cash flow, especially for the small business model. With careful practices you can hire a workforce that is fully trained and highly specialized.

• More Employees Equals More Responsibility:  Human resources is a very time consuming aspect of all businesses. The more employees you have the greater your responsibility to manage them. Since contractors are self employed their motivation to excel often requires little or no management. Any time one hires an employee they increase their exposure to potential work related law suits, this is not true with an independent contractor.

Another consideration, especially for small business owners is that contractors are generally very specialized. The advantage to the business owner is that they are allowed to do what they do best. Consider a construction business owner-he is an expert at building; it is often the case that he or she knows nothing about bookkeeping and it should be intuitive for everyone to know that a good bookkeeping is essential to the success of any business. Elements of bookkeeping also aren’t taught in medical school therefore it makes sense to hire someone whose focus is bookkeeping. Life is just more efficient when everyone does what they are best at.

Hiring independent contractors is an excellent solution for staffing during unpredictable economic times. You may find that the hourly rate is more than you would expect to pay a direct employee-but consider the cost savings as well as the benefit of having a contractor who is also a small business owner and who is also highly motivated to be successful and prosper in their own business.

By Shelly Hutton