Do I need an employee or contractor?
‘Do I really need a formal employment relationship? Can’t I engage this person to work for my business as a contractor?’ This question comes up time and again when we discuss our clients’ wishes to grow their workforce or establish a new office, and they don’t know whether they need an employee or contractor.
The answer is potentially complex as there are multiple factors to consider. Each country has its own rules.
But there’s an old saying: “If it walks like a duck, swims like a duck and quacks like a duck, chances are that it’s a duck”. Apply that same straightforward thinking to your new hire, and the answer is often just as clear.
Employee vs Contractor test
To test whether you need an employee or contractor, ask yourself the following questions:
- Is the person you want to hire going to be working just for your business?
- Will they have multiple clients of their own?
- Will they work autonomously to provide an outcome for you?
- Are they a resource that you can deploy as you see fit?
- Will this person represent themselves as your brand?
- Will their email footer and LinkedIn profile display their own company name?
- Do they need to book holidays with you?
- Do they need to report their sickness to you?
If you ask these questions and decide that this person is working exclusively for your business, they represent your organisation, and that they’re being managed by someone in your team, they are an employee and should be engaged as such. No matter what the territory, it’s really that simple.
Dangers of employee misclassification
Though it may be tempting, the dangers of misclassifying an employee as a contractor are many-fold. There are fiscal implications. For example, are the correct taxes and social costs being paid in the country in which the person is working?
Equally serious are the employment law considerations. Could the person you took on as a contractor, later claim they have behaved as an employee? If so, they would be entitled to benefits such as paid time off or retirement savings.
Longer term, consider the impact it could have on your new recruit. The burden they must take on of calculating and remitting the correct payroll taxes, and in the message it gives. That is that this is not necessarily a long term arrangement and they are not an integral part of your team.
So, if you have a duck, don’t get in a flap. Talk to Agility EOR about the use of our pond.