Do you benefit more by being an independent contractor vs. an employee?
Throughout the pandemic we have continued to see record highs around the turnover within the workforce. The pandemic shed new light around the concept of work-life balance and flexibility within the corporate world. But not only has there been turnover, there has also been an increase in those creating side hustles or seeking out additional income from their 9-5’s to support their families or lifestyle.
With this wave of change over the workforce, I thought it would be relevant to discuss the the new “Gig Economy” momentum and increase in independent contractors over the last 5 years.
There are a few key considerations that I want everyone to know before they sign up to be an independent contractor and perhaps why it may benefit you more than being an employee!
An independent contractor is hired to perform work for a company in accordance with the terms of the contract negotiated. However, this individual is not an employee of the company.
A few examples of independent contractors that are not employees but are being paid an income by a company as a result of the work they are providing or performing for them:
These are just a few examples of different types of independent contract work that we are starting to see more and more of in the past few years but there are SO many more examples.
Independent contractors are being paid by a company for providing goods or services, and yet not being tied to or employed by the company. So how does that work?
One of the major differences between being an independent contractor vs an employee are based on the benefits provided to them.
An employee may receive the following benefits from their employer:
An independent contractor typically would not receive any of the above benefits from the company they are hired by.
Although an independent contractor may not receive any benefits or perks from the company as listed above, they will benefit from the following:
There are a number of different costs and variables that go into the actual expense of an employee.
In other words, if you were being paid a $100,000 salary, it may cost your employer anywhere between $125,000 to $140,000 to keep you on as an employee.
Many employers provide their employees with health insurance benefits, retirement contributions, paid time off along with additional perks within the office.
Hiring an employee also means considerable payroll tax costs. An employer is responsible for Federal and State unemployment taxes along with half of the employees self-employment taxes.
So when thinking about that….if a company is hiring you as an independent contractor, they have no other costs associated with you other than paying you for your services. So what opportunity does this create for you?
You, as the independent contractor, have every right and every reason to increase the value of your services and negotiate to be paid at a higher rate. Why? Because the company is paying roughly 25% less as a result of hiring you as an independent contractor vs. a full time employee.
Your negotiating power is upwards of 15%-20% greater than a W-2 employee. With that knowledge in mind you will be able to position yourself better. Remember it is all in the way you market yourself and express the benefit to the employer.
For example:If a W-2 employee in your line of work and level of experience makes approximately $75,000, it would be reasonable to request to be paid $85,000 – $90,000.
Going back to the average that employees cost their employers roughly 1.25 to 1.4 times the salary of the employee….An employee who makes $75,000 would cost an employer on average somewhere between $94,000 – $105,000.
An independent contractor could ask for $90,000 annually and position it in a way that your employer may have the opportunity to save roughly $4,000 – $15,000 by hiring you vs. a full time employee.
For large corporations they may not be as of an attractive sell, but for small business owners – that is meaningful!
The independent contractor life is not for everyone – but you can certainly make a good argument for why it makes sense for many!
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