As a business owner, one of the most important decisions you’ll have to make is whether to hire freelancers or full-time employees. Each workforce has its advantages and disadvantages. Today, Numbercraft takes a closer look at the tax advantages of hiring freelance workers instead of full-time employees.
Tax Benefits of Hiring Freelance Workers
Also referred to as independent contractors, Business News Daily explains that freelancers file their own taxes. As a result, hiring independent contractors instead of full-time employees saves time. You spend fewer hours filing workers’ taxes because you don’t need to print, complete and submit as many employee tax forms. Overall, hiring independent contractors reduces the burden of tax compliance.
Hiring independent contractors also simplify your payroll processing because you make fewer deductions when you pay the workers. When processing payments for freelancers, you don’t need to calculate holiday pay, bonuses, and reimbursements for expenses. Having a freelance workforce eliminates the need to understand and navigate complex tax legislation.
You’re not required to pay unemployment insurance for independent contractors, nor are you required to pay them workers’ compensation. Independent contractors are responsible for their own contributions. Other benefits that you don’t need to provide independent contractors include life insurance and health insurance.
Writing Assistance, Inc. points out that hiring independent contractors keeps your staffing costs low. When you hire independent contractors, you assume they’re already good at what they do, so you don’t need to spend money training them.
Compared to full-time employees, independent contractors are a flexible workforce that makes it easier for our business to adjust to inevitable downturns. For these and other reasons, many employers prefer to hire independent contractors.
Another way to reduce your taxes is by forming a limited liability company. LLCs have better tax rates and legal protections, but the process can be complex, so it’s a good idea to enlist the assistance of an online formation service that can get you set up in no time.
Avoid Misclassifying Independent Contractors
Regardless of the benefits businesses get from hiring independent contractors, they face serious risks if they misclassify workers. Companies that misclassify workers are subject to back payments, back payments interest, fines, and even public shaming.
Some things make it easier to classify your workers. For example, independent contractors file their own income taxes and settle their own business expenses, such as equipment and training. Additionally, independent contractors aren’t entitled to benefits, such as paid leave and employment insurance benefits. Many companies avoid the risks of misclassified independent contractors by enlisting the help of an accountant.
Save Time and Money by Hiring Freelance Employees
Hiring freelancers instead of full-time employees saves your time by minimizing tax-related paperwork, streamlines payroll processing, and reduces staffing costs. It also allows you a great deal of flexibility – especially if you’re thinking about starting a new business or revamping your existing one – and might be just what your business needs in order to grow!
Numbercraft uses the power of mobile, cloud-based accounting systems combined with many years of bookkeeping experience to remove the headaches from managing your business related accounting. Call (503) 616-3663.