Key Financial Benefits of Hiring Freelance Workers

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Hiring a remote staff has a plethora of perks. First, you have access to a vast pool of talent. But beyond that, you also get to enjoy a few financial perks, such as fewer taxes and lower overhead. Keep reading for the basics of hiring freelancers, how it’s tax advantageous when compared to recruiting full-time employees, and other ways skipping the 40-hour-per-week paychecks can save you money.

Seamless hiring

One of the biggest benefits of hiring freelance workers is that you can skip much of the recruitment process. Instead of writing a job description, vetting potentially hundreds of applicants, and hoping that your choice works out, you can turn to a gig-based job board that screens candidates for you.

Upwork, one of the most well-known of these, is a great example. Through the site, you can pick and choose freelancers in just about every discipline, whether it’s web development, accounting, graphic design or administrative help. And since you are not paying to onboard them, if they don’t work out, you can try another without all of the expenses associated with full-time employee turnover. 

Huge tax savings

A freelance worker is not an employee (more on that later). Because of this, you are not required to withhold payroll taxes, such as Unemployment or FICA. This makes accounting much easier than when dealing with withholdings.

Something else to consider is that you do not have to pay the employer’s share of Social Security and Medicare taxes. According to Gusto, for 2019, the employer Social Security tax contribution is 6.2% of an employee’s base pay. Medicare tax totals 2.9% of gross wages, and you are responsible for half of that for people on your payroll. This equates to more than 7% in taxes that you don’t have to pay when you opt for a contract worker.

If sorting it all becomes unwieldy, there are online payroll services that can help you out, so you’re sure funds are appropriated correctly.

Freelancer or employee?

Before you get excited and start labeling all of your current workers as freelancers, it’s crucial that you know the difference between the two employment classifications. The CPA Journal explains the IRS evaluates more than 20 common factors that determine whether or not an individual is an employee or contractor. These are broken down into three categories, which are the relationship between the parties, financial control, and behavioral control. Failure to properly classify your employees will cost you much more than any potential savings, so mind your p’s and q’s.

In an employee/employer relationship, your employee typically works only for you and may be prohibited from providing similar services to a competing firm. A freelancer, by sharp contrast, is free to work for whomever they desire. Financial control boils down to what you do with their money. With an employee, you withhold taxes and, potentially, other court-ordered monies, such as child support or alimony. A freelancer receives the entire sum of the contracted amount, and they are responsible for their taxes.

As an employer, you direct the behavior of your employees, which might include where work takes place and what clothing they wear while working. A freelancer may work from wherever and in whatever circumstances they wish, up to and including at midnight in their pajamas. As long as the project is done by an agreed-upon timeline, you have no say in how it is completed.

Other savings

You might be surprised to learn that your potential tax savings can go beyond the actual workers. In addition to employment taxes, hiring freelance workers also means you do not have to purchase and pay sales tax on equipment. What’s more, freelancers provide their own computers and any other tools they need to complete the job. And since independent contractors work from their own offices, you do not have to purchase furniture or invest in a building and the property taxes associated with owning commercial property. And last but not least, you avoid paying out other benefits when you hire freelancers, such as vacation, sick pay, health insurance, and retirement investing.

Overall, hiring freelancers has the potential to help you realize significant cost savings. However, it (literally) pays to be cautious. Knowing the difference between an employee and a contractor -- and ensuring that they are aware of the subtle nuances -- is the key to cost savings.