hiring freelancers
hiring freelancers

Hiring Freelancers: How they can help and what your accountant wants you to know

If you’re just starting your business, in a period of growth, or need holiday help, hiring freelancers, or independent contractors, might be your best option. Freelance workers offer many great benefits to businesses and can be brought on when the business needs help the most. These are some of the most common reasons businesses hire a freelancer rather than a traditional employee.

1. You need help ASAP.

There are many times in business that help is needed now, and the process of searching, interviewing, hiring, and onboarding an employee will just take too long. The process of hiring a freelance worker is oftentimes much more simple and can save valuable time. A cloud-based payroll and HR system, such as Gusto, can help you be even more efficient. From job-posting, hiring, and contracts to timekeeping and pay, Gusto can help automate and speed up the process. 

2. You need someone with industry expertise.

Oftentimes freelancers work remotely, removing the geographical restrictions and opening up the talent pool. Businesses gain access to industry experts who have the experience needed to provide top-level service, specific to the business niche. As a business owner, your expertise is the product or service that you offer. Bringing on the help of a freelancer can ensure other essential functions of the business are taken care of, and a freelancer can also help you create processes to increase efficiency and customer satisfaction.

3. More salaried employees aren’t in the budget.

Along with the salary, come insurance, taxes, 401(k) matching, bonuses, and other benefits that can add up quickly. When hiring freelancers, you’ll create an arrangement based on an hourly, retainer, project-based, part-time, or full-time work schedule; they frequently offer solutions to meet most budgets. If you have a busy season, product launch, or other temporary increase in demand, hiring freelancers can help you scale up, provided you follow the rules for hiring contractors vs. employees (more on this below). 

When you dive into the marketplace for freelancers, you’ll learn that they provide services at various price points. It’s important to be aware of your budget prior to starting your search. Having a big picture of your business finances in one place can help you set a budget for seasonal or temporary assistance; with real-time insights into expenses and revenue, you can make an informed decision about extending a temporary contract. Using a cloud-based accounting app, such as Xero, gives you total control of the business finances from one user-friendly dashboard.

4. You don’t know what the future holds

Freelancers offer flexible solutions when the future of the business is uncertain, perhaps because the business is just getting off the ground, going through a period of significant growth, or still determining how to navigate the post-pandemic market. As mentioned above, freelancers work in different ways and can offer an alternative to the fixed costs of traditional employees. 

Freelancers work in various industries such as human resources, accounting and bookkeeping, IT, marketing and sales, and consulting. The expertise that they can bring to a company can be incredible, offering years of experience, industry insights, and market knowledge. Some freelancers have networks of experts that may also be able to fulfill the needs of other areas of the business. 

Proper classification of contractors vs. employees

If it’s your first time hiring a contract employee, it’s important to know the differences in classification. The way you classify your workers comes down to how taxes are paid, but there are also detailed rules you must follow in both cases. Some of the most common missteps in this area involve business owners wanting to control a contractor’s workplace, methods for completing the work, and hours of availability. The contractor also shouldn’t be providing services that are the key business activities. There’s a lot of gray area, but the IRS has recently been scrutinizing these relationships, and judgments against the employer can be costly.

If you have an employee, you are paying employment tax and withholding other taxes from their pay. With a freelancer or contractor, no taxes are withheld, and paying taxes is the contractor’s responsibility. For employees, you will file a W-2; you will file a 1099 for independent contractors. Either way, it is crucial to collect all necessary information at the beginning of the working relationship in order to report all earnings appropriately to the IRS by the annual deadline (usually the end of January). If you need assistance preparing 1099s, check out our 1099 preparation services

Stay Updated

Sign up for our email list to stay updated on the latest tax news and financial planning advice.

This field is for validation purposes and should be left unchanged.