Though traditional direct hiring still makes up a majority of employment in today’s economy, the market for contract workers is growing steadily. In the next five years, the number of freelancers in the United States is expected to grow by upwards of 16 million workers and has increased by 13 million in the last five years.
Contract workers offer a wide range of benefits to the companies that elect to bring them on, such as less contract rigidity, lower commitment, and contract-to-hire opportunities. However, they also require management that can make complex tax and employment decisions to avoid severe penalties.
Fortunately, employers of record, or EORs, are here to help. An EOR such as myBasePay comes in with expert knowledge of the intricate situation that is contract workers. Keep reading for more information about the benefits and complications of hiring workers on short-term contracts and how an employer of record can help.
Positives of Contract Hiring
The benefits of bringing on contract workers are aplenty. The first and most obvious is the ability to bring on a new employee without committing to a long-term contract. If the employee is a good fit and works within the company’s system, there may be an opportunity to bring them on at the end of their short-term contract.
This also often avoids significant onboarding costs. If a contractor is brought on for a specific role for a short period of time, the onboarding and training may be a more simple process, depending on the contractor’s qualifications.
Contract hiring also allows more budget and staffing flexibility year-to-year. By keeping the company out of long-term commitments to employees, there’s more room to hire and let go employees if money becomes tight.
Contract Hiring Comes With Challenges
Though contract workers may seem like the obvious way forward for many businesses, there are plenty of considerations that come into play when making that decision. Contractors work under different contracts and tax designations from directly hired employees, and a company can run into hot water if they’re not trained in properly designating these workers.
The IRS is waiting and ready to pounce on a company that incorrectly files a full-time employee as a contract worker, or vice versa. A company which makes such a costly mistake as this can face swift retribution and harsh penalties from the IRS.
As such, businesses want to avoid this liability at whatever cost. By outsourcing to a staffing agency for interviewing and hiring before bringing in qualified candidates, the process gets one step easier. Then, electing to outsource payroll and tax considerations for many of their more complicated employment situations is the logical next step.
It takes a team of trained professionals to double- and triple-check records before they’re produced for taxes, compensate workers when necessary, and administer payroll, especially when a company is mixed between full-time direct hires and short-term contract workers.
This is where an employer of record, or EOR, swoops in to protect your business. The EOR takes on full legal responsibility for contract workers within an organization, including the liabilities and responsibilities. The EOR effectively serves as a third party, independent company while taking on the most challenging parts of contract hiring management.
An EOR takes tremendous pressure off of a company’s back end. It typically covers a wide range of tasks, from benefits administration, tax deposits, withholdings, and payroll processing to managing unemployment claims, workers compensation, and compliance among contract hires.
The Benefits of Bringing In an Employer of Record
At the very baseline, an employer of record will keep a company out of the hottest of water when it comes to the most simple mistakes. By taking care of specialized functions that EOR employees are specifically trained for, an EOR is there to make sure that no careless errors cost a company dearly. However, the benefits are far beyond just that.
By simplifying the back end of the processes that a company uses, there’s a tremendous amount of new freedom allowed. The employees who were previously slogging through books four times a day to make sure the IRS won’t come knocking are freed up to advance the company in other ways, and if they’re redundant, they’re no longer necessary.
If a company contracts with both a staffing agency and an EOR, the process only gets simpler. In partnership with the staffing agency, an EOR makes it so that the only responsibility that the company has is maintaining their contract workers and managing them on-site.
An EOR also has the responsibility of registering in each of the states where it employs workers (on your behalf), which avoids your team’s needing to understand complicated tax codes all over the country and even the world. With nationwide training, preparation, and experience, an EOR can come in and plug all the holes you never knew your company had.
The benefits of hiring an EOR even go beyond back-office red tape. Not only can an EOR help you with payroll, taxes, and much more in that setting, but it can be utilized to outsource company vehicles and take care of miscellaneous company needs.
The benefits of bringing in an EOR to restructure payroll, benefits, and contract practices are multitudinous, and it’s hard to imagine a client company that wouldn’t benefit from the watchful eye of a professionally trained third party.
As the gig economy continues to explode–workers value comfort and flexibility in their job more than ever before–more and more traditional direct-hire companies will elect to bring on contract workers to fill out their team. Though some may be hesitant to take this step because of the potential complications it may bring, there’s excellent news: employers of record are here to help.
Groups such as myBasePay offer peace of mind, expert services, and professional management of the back-end processes that can sneak up and hurt a company the most.
Author: Cesar Jimenez, myBasePay CEO
Cesar A. Jimenez is an entrepreneur, investor, and military veteran with over 25 years of staffing industry expertise successfully leading technology staffing organizations. His expertise in the IT industry allows him to use his experience as a thought leader for talent acquisition, staffing, IT, and recruitment technologies with a passion for contingent workforce solutions. Cesar has held various leadership roles for both a global staffing organization and technology solutions companies. This expertise has enabled him to develop alternative workforce models that provide the agility for organizations to be competitive in today’s marketplace. In his spare time, he enjoys spending time with hisfamily, working out, and coaching high school baseball players.