Outsourcing Tycoon

**Shey** · 04-02-2011, 12:59 AM

In an employer's point of view, is it better to have employees or get independent contractors? What are the pros and cons? What's better in terms of tax?

**chrishirst** · 04-02-2011, 09:23 AM

Depends where you are in the World.

**vangogh** · 04-04-2011, 04:33 PM

I don't think there's an easy answer and given taxes are part of it, it will depend on where your business is.

With taxes here in the US I think you're paying more for employees as you have to contribute employment tax. I don't think it gets any more complicated than that, though I'm neither account nor employer so there may be other benefits and costs I'm not aware of.

**laborer** · 04-04-2011, 10:07 PM

employee is better for long term projects where as independent contractor is better for short term projects.

**Jim Gillum** · 04-05-2011, 01:41 AM

In the US......per various states...the rules vary.....

It is going to depend on the job.........
Many government agencies outsource employees to save money....
If that gives you an answer..
But....many times the contracts increase in the second year...

**Shey** · 04-05-2011, 04:51 AM

Thanks everyone, I appreciate all the replies.

Since employers will have to pay for the facilities having employees plus employee benefits, should we say it costs more having employees than independent contractors/freelancers?

What are your thoughts?

**daniel1024** · 04-29-2011, 03:17 AM

It would depend on the type of service or business that you have. For instance, if your business relies on a dedicated group of individuals with particular specializations, you're definitely going to need full time employees.

If your business is solely based on the Internet and the tasks that you need to be carried out are specialized but not long term, independent contractors are what you need.

Let's put it this way, if you want to carry out a war, when would you hire Black Water and when would you opt for regular infantry?

Taxes, yeah, no taxes here in freelancer land.

**chrishirst** · 04-29-2011, 07:04 AM

Quote:

Originally Posted by daniel1024

Taxes, yeah, no taxes here in freelancer land.

Well not until you get caught of course.

**pararudalf** · 08:10 AM

Quote:

Originally Posted by Shey

In an employer's point of view, is it better to have employees or get independent contractors? What are the pros and cons? What's better in terms of tax?

You will get pros and cons in all the areas now so do what every give you profit.

**chrishirst** · 04-29-2011, 08:11 AM

Quote:

Originally Posted by pararudalf

You will get pros and cons in all the areas now so do what every give you profit.

Well! What an astonishly unhelpful non-answer that is!

**Shey** · 01:28 AM

So if I hire someone from overseas as an employee and he/she remains there while working for me, I will have to pay my part of taxes in his/her country right? Or is it only if I registered my company in that country, say registered to operate and enlisted in SEC?

If I hire a freelancer then yes I agree, I don't have to pay my share of taxes and neither does my freelancer.

Quote:

Originally Posted by chrishirst

Well! What an astonishly unhelpful non-answer that is!

sig link removed? that's good.
I think that post should be deleted as it does not offer value

**chrishirst** · 04-30-2011, 07:49 AM

I like to leave them sometimes, just to let others know what considered helpful or not.

One line of half a dozen words in a post can be very helpful, whereas a whole page might sometimes be completely useless. It's a judgement call really, but it always handy to have examples of bulked out non-answers.

**colbyt** · 05-01-2011, 11:46 AM

The actual laws and regulations vary far to much world wide for you to ever get a definitive answer on an international forum.

Being US based I am of the opinion that hiring independent contractors is far cheaper that having employees. That will become even more true as the burdensome regulations of ObamaCare unfold.

Of course the down side of that is you can not control the flow or work processes as well as you can with employees. You may only specify the final desired result. You are essentially paying for a result. When you start to manage the processes and flow you are directing the person and risk losing the IC status.

.

**jedz** · 05-04-2011, 02:03 PM

I think this is the main reason why outsourcing is now popular. However, if you're going to outsource your services, I would suggest to hire a firm instead of a freelancer. because leased staff are permanent workers of a company and are easy to reach in case you need them. Freelancers do not have employers so they do as they please and sometimes cannot be contacted for various reasons.

Also, the staff that you lease are backed by a good management and technical team. Your files and data are secured and confidential.

**Shey** · 05-05-2011, 02:09 AM

Interesting points everyone. Your responses are very helpful.

In terms of leased staff from a firm, wouldn't it cost more compared to hiring a freelancer? For sure there would be additional fees such as Administrative, Recruitment/Inductions, Software and Technology...?

What do you think?

**EaaTan** · 05-06-2011, 12:27 AM

If I've the funds, I will go for the employee.

If you're going for the independent contractor, I will say that I've never come across anyone reliable yet. From my experience, there might be issues arising with the projects that you did 2 months ago because of the bad coding that your developer did and you need someone to fix it. Then you will need to factor in all these costs and your profits go down.

Not to mention, there's a lot of Freelancers who do a sloppy job and then tell you that they finish the job. When you checked through the website, you realize that there's errors here and there and tell the Freelancer about it. Then he will request for more money because of this and that. But he was supposed to create the website from scratch but yet he is telling me that I need to pay an additional sum because of an error he made.

As you can see, I've a lot of disgruntlement working with Freelancers. I've never yet come across a reliable Freelancer. So if I've the funds, I will most certainly hire an employee over a Freelancer. At least, when I found out that there is something wrong with the project, I can go back to the employee and I know he will always be there.

**Shey** · 08-26-2011, 01:14 PM

Thanks EaaTan for sharing your thoughts.

Quote:

Originally Posted by EaaTan

If I've the funds, I will go for the employee.

Many small businesses simply can't afford the cost of hiring full time staff, yet have a range of things they need done day to day which requires special skills.

Quote:

Originally Posted by EaaTan

From my experience, there might be issues arising with the projects that you did 2 months ago because of the bad coding that your developer did and you need someone to fix it.

At Freelancer.com, we have a secure milestone payment system which means you only pay for the work you are happy with. Our posting and bidding systems are designed to maximize the potential for satisfactory results for both the service buyer and service provider.

Quote:

Originally Posted by EaaTan

Not to mention, there's a lot of Freelancers who do a sloppy job and then tell you that they finish the job. When you checked through the website, you realize that there's errors here and there and tell the Freelancer about it. Then he will request for more money because of this and that. But he was supposed to create the website from scratch but yet he is telling me that I need to pay an additional sum because of an error he made.

How can I be sure the freelancer does the project? – We have a reputation system where previous employers are able to post feedback on freelancers they have previously hired. You are able to look at this feedback to make informed decisions. Also we have a milestone payment system where you only release funds once you are 100% satisfied with the work completed.

Funds can be deposited to our Milestone Payment system and released when prearranged milestones within the project are reached. For instance, an employer can offer a service provider an up-front payment if desired, followed by a series of payments to be released when specific goals are met, and a final payment released when the project is completed and approved.

Quote:

Originally Posted by EaaTan

At least, when I found out that there is something wrong with the project, I can go back to the employee and I know he will always be there.

There should be means for employers and freelancers to collaborate and at the same time provides protection for both.

Freelancer.com strives to provide a safe, simple and affordable environment for cooperation between freelancers and employers around the world. Simply put, it makes the process of hiring your next contractor a pleasant and rewarding experience for you both.

**StartWaves** · 06:31 AM

Employees are more expensive than contractors and imply to the worker and often the state that you are making a longer term commitment that it can be expensive and damaging to get out of. In many locations, including some US states, you need grounds for dismissal and there are costs in terms of days of pay that must be paid. Some US states have no fault dismissal but still have significantly different tax withholding requirements for employees so it's important to be clear which relationship you are starting and not to have to pay taxes later that you didn't collect when paying workers.

You need the worker to be an employee if:

1) the law in any of the jurisdictions (Yours, theirs, your legal entities, intermediaries etc.) requires it. The legal system in each location will have well defined tests for employment. If you are training somebody, and telling them how to do the work then they are generally speaking employees but you must research your location's legal systems. Home workers are often employees and even people in remote locations can, in some cases, be employees.

2) You need to retain knowledge for a recurring part of your business. You can't run your entire company with people who frequently disappear or become unavailable unless you have very little proprietary knowledge required for your business and don't need capacity on instant demand. For your company to know how to execute business your staff need to retain some knowledge in order to be able to scale up, assess and train others etc. At some point you will need employees as well as the more flexible and cheaper contractors otherwise the business owner becomes a bottle neck in retaining all knowledge.

3) For credibility. If your staff are transient and you can't point to them, you loose credibility with investors, media, the community etc. At some point you just need to have some employees to be credible. In most of the US preferably less than 5 to avoid compulsory health care costs. Many local customers and state agencies want to see that you have local employees and their presence can lead to significant good will, grant and bidding opportunities.

The caveat to item 1) is that in many countries, including the US, employment law is almost never enforced. Two thirds of contract staff and interns should legally be employees in New York State for example, but prosecution is based on external pressure. Either from complaints by competitors, unions, employees or customers. Generally speaking some management of community goodwill is necessary if you are using contracting in disregard of 1) at any scale and you need to be a bit aware of the risks and retain a balance of full time and contract staff to cope with all eventualities. Many US states' tax departments are far more aggressive about prosecuting this than the federal government and the law is less amenable to freelancers than say in the UK. Large employers in the US handle this by the workers being an employee of a company in the same location as the workers and by the business hiring services from the contract company. They don't directly use freelancers. In this way tax is being paid as an employee and the authorities are not going to prosecute anybody even if they could argue that the person is actually a direct employee of the business. It's normally the employees who end up arguing that they are direct employees in order to access the better benefit packages of employees. Prosecutors give more significance to location than the law does and prosecutions are only in situations where the contract individual is physically in the premises of the business. Of course that's not advice, you should consult your accountant and lawyer. Contact the accountant first. They are cheaper, and it is they who are going to be telling you how to account for the payments to the workers.

There are a lot of judgement calls and you need to be aware of the law and enforcement practice and at what point in scaling up you are going to receive scrutiny from others. In a more perfect world the law would be enforced as written and the answer would be as I have written in 1). Of course the laws would have to make practical sense and allow sufficient flexibility. In reality the laws are historical and were never designed to cope with individuals providing service across borders. People are getting by with a less than ideal framework but it can be made to work.

**Shey** · 09-14-2011, 10:06 PM

thanks for your input StartWaves

In terms of cost calculations, for employees, it should include benefits up to 25% on top of salary and bonuses, costs for equipment, facilities and administrative support. Also, decrease employee’s time available to work by the time taken for vacation, sick leave, travel, company functions,
training, etc. which is usually around 30%. The result is the time left to work on your project.

Here's a conservative estimate of a typical employee cost:

employee cost.png

If you have the money, hire an employee.