Understanding this, one common problem that arises with young businesses going remote is that the

doctrinal definitions of both employee and independent contractor are vague. It is important to
understand each type of worker and when each can, and should, be implemented.

Without further ado, let’s take a look at both independent contractors and employees as well as their
advantages and disadvantages.

Full-Time Employees: A Full-Time Commitment

Within the context of a remote team, a full-time worker will engage in remote work 100% of the time.

They will be the exclusive employee of a single company and will be compensated by either a salary or
hourly rate. The employer will have a vast range of responsibilities to the employee, including filing for
tax withholding and reporting, employee benefits and the expectation of long-term and integral
employment, even if the employee is “at will.” All of these responsibilities are to be clearly stated in
a full-time employment contract.

Another important characteristic of employees is that they are subordinate to employer authority to a
greater extent than independent contractors. What exactly does this mean? It means that employees
will have to adhere to company policies and requirements as a contractual obligation of their
employment. Employees will be bound by the value statement of their employer and will receive their
supervision, work hours and requirements from their employer.

What is a phrase that clearly defines the relationship of employer/employee?

Complete control.

Complete control over work method, complete control over work product and complete control
over training.

But remember! With complete control comes complete responsibility. Health insurance, life insurance,
full compensation, overtime, etc. all come with the territory.

With all these duties and responsibilities, why would any employer opt for employment? Let’s take a
look at a few of the advantages.

Hiring Employees: Advantages/Disadvantages

Contrary to popular opinion, hiring employees can still bring a return on investment (ROI) and value in
the digital age. Well-trained and appreciated employees can help form the foundation for a strong and
team-focused work culture.
Aside from work culture, some of the most important advantages of hiring traditional employees
include:

1. Enhanced Authority: While yes, “enhanced authority” does sound somewhat draconian, the fact
is employers have more control over employees than they do independent contractors. This
control is, in many aspects, a distinct advantage to working with independent contractors.
Control allows for more efficient project oversight and accountability. In a business climate
where professional reputation means everything, enhanced employee control gives an
employer the ability to foster and build a reputation based on high-quality engagements crafted
in the manner they see fit.

2. Low Turnover Rates: Employees understand very well that there is a mutual investment that
exists within the employer/employee relationship. Knowing that an employer has invested time
and resources into them will ultimately result in a higher degree of loyalty, and in turn,
increased production. To employees, companies represent stability and career growth. This
long-term outlook is unique to employees and in most cases leads to predictable year-end
turnover rates.

3. Employee Training: When compared to independent contractors, one big advantage that stands
out for employees is the jack-of-all-trades nature of employment. Employers have the ability to
train employees on a wide range of skills and proficiencies and within a variety of departments.
Diverse knowledge results in increased worker diversity and flexibility to adapt to demand.

While traditional employment has proven adaptable to the digital age, it is not without its flaws.
Advantages and disadvantages are typically subjective and dependent on circumstance, but the
following are generally agreed upon as the major disadvantages of hiring traditional employees in the
digital age:

1. Increased Legal Liability: This disadvantage is directly related to the benefits and
accommodations listed above. Employee benefits are not merely a form of benevolence; they
are a right. Employees often have a valid legal claim to collect unemployment insurance and
compensation benefits and also have the right to sue for harassment or discrimination.

2. Benefits and Accommodations: The most glaring disadvantage to hiring employees in the digital
age is the capital required for employee maintenance. Much like a five-star hotel, an employer
must provide accommodations, and those accommodations are not cheap. From office space, to
equipment, to social security and taxes, the costs can quickly add up. Factor in overtime and
paid time off, and we are now looking at a very large monetary investment.

3. Lack of Specialization: In an ever-evolving digital economy, it is important to remain flexible.

While jack-of-all-trades employees can benefit company growth and efficiency, typical
employees lack the specific skills and services that can be utilized for high-level engagements.
Typically, independent contractors are superior in this regard because they offer a specialized
skill set for specific projects, a skill set that is not generally found with normal employees.
While no longer the most popular option, research does show that given the right growth conditions,
traditional full-time employees (when remote) can be productive and engaged over the long-term.
Therefore, they should always be considered when looking to hire remote.

Independent Contractors: One-Time Specialization

While it is easy to say that independent contractors are simply the opposite of full-time employees, it
would serve us well to review in what distinct ways they differ. Whereas an employee is subject to the
full authority and control of their employer, independent contractors work with multiple clients on a per
project basis OR with one company for a specified period of time. They are paid an hourly wage and are
responsible for securing (on their own) almost every benefit allocated to full-time employees.

Retirement?
Tax reporting?
Paid time off?
Training?

Depending on the agreement, all of these benefits and more will likely be delegated as the responsibility
of the independent contractor. These cost savings are a distinct advantage in today’s digital economy
and one of the main reasons why the independent contractor movement is expected to include 40% of
the U.S. workforce by 2020.

To further understand this movement, let’s take a look at some of the commonly cited advantages and
disadvantages of hiring independent contractors.

Hiring Independent Contractors: Advantages/Disadvantages

It is generally agreed upon that the independent contractor/freelance movement is mutually beneficial
to both laborer and employer. Employers lower long-term risk and cut costs, while workers take more
control over their careers and earning potential. Both enjoy enhanced flexibility. As we previously
discussed these benefits in a prior post, let’s take a look at one additional (but just as important)
advantage of hiring independent contractors:

Global reach.

A trademark of the digital age is the ability to access on-demand specialization.

Mobile and remote businesses have a unique set of needs in the global economy. With the rise of
modern technology and the destruction of global information barriers, it is now easier than ever to find
unique workers to meet unique needs.

Third-party staffing agencies exist that specialize specifically in freelance placement. From lawyers, to
salesmen, to programmers, the global workforce is ready to meet the specialized needs of today.
Companies such as Upwork and Freelancer can connect independent contractors to employers faster
than ever before and without the need for training, HR processing and paperwork. Focused skill sets
allow employers to supplement the jack-of-all-trades workforce by hiring independent contractors as
needed.

Traditionally, specialized labor in the form of full-time employees resulted in a difficult cost-benefit
analysis for employers. While employers were certain that specialized labor would be needed to resolve
certain high-level issues, hiring specialized labor full-time often brought about diminishing returns in the
long-run. If the highly unique skill set of specialized labor was not being used, the employees suddenly
became a glaring cost due to lack of production and their guaranteed benefits.

Today, independent contractors can now be hired as needed, and if demand for work slows down or
stops, specialized labor can be reduced or cut.

However, all is not perfect in the independent contractor world.

While generally yielding positive results, hiring independent contractors is not without its downfalls.
Here are the most common disadvantages of hiring independent contractors in the digital age:

 Worker Classification: As previously discussed, worker classification can function both as a

positive and a negative. On the one hand, it acts as a cost-saving mechanism when a worker is
defined as an independent contractor. However, on the other hand, the definition has a
tendency to be vague. When a dispute arises between employers and independent contractors,
courts and other governing labor bodies will not hesitate to change worker classification if it
appears that the nature of the relationship did not reflect that of an independent contractor.
The key is control. As a best practice, employers should build a defense file and prepare to show
that the relationship is not that of employer/employee. If you fail to do so, you could join the
ranks of employers who had to pay $79 million in back wages in 2014.

 Relationship Longevity: Independent contractors are not your friends and they are not your
employees. They are the mercenaries of the digital age workforce. They look for the highest
bidder for their specialized talents and represent their own values and brand throughout the
work process. Knowing what to expect from an independent contractor relationship is essential,
as their ROI is likely to be per project and lack the ROI arch often associated with jack-of-all-
trades employees. A high turnover rate often makes it difficult to develop a consistent and
strong work culture, one of the biggest factors associated with long-term success.

 Worker Specialization: As you can see, a pattern has developed here. Almost every advantage of
hiring an independent contractor has the potential to develop into a disadvantage.
Specialization is no different. Specialization means that for what independent contractors lack in
skill diversity, they make up for with exceptional work quality. Yet, as we know in the digital age,
needs often change on a whim. Most independent contractors do not provide the multi-tasking
ability necessary to adapt to need changes unless the new needs fit within their specialized skill
set. While rare, it is something to keep in mind when developing a hiring strategy.
Conclusion: Independent Contractor or Employee?
So there we have it!

You now have a basic idea of what to expect from hiring both independent contractors and employees.
Which should you hire? Unfortunately, there is no one clear answer. Ultimately, it depends on the needs
of your engagement.

Ask yourself these questions:

1. Does the work require supervision? If yes, employee.

2. Is the work long-term? If yes, employee.

3. Do you want/need to control the hours and means of production? If yes, employee.

4. Can the work be completed without much supervision? If yes, independent contractor.

5. Do you need specialized knowledge for the short-term? If yes, independent contractor.

6. Is the work non-essential for your overall business? If non-essential, independent contractor.

Review these questions, approach each decision on a case-by-case basis and always remember to be
familiar with the legal rules and regulations of your work jurisdictions. Follow these simple steps and
watch your ROI build with a wealth of options.