Independent Consulting is among one of the growing forms of alternative employment in our current job market. According to the Intuit 2020 Report, 80% of organizations are predicted to utilize freelance, independent consultants, and other augmented forms of employment by 2020. The numbers continue to grow, and allow some traditional employees the opportunity to find a new type of employment that better suits their lifestyles. Although the Independent consultant or contractor sector has been traditionally viewed as less stable and riskier, its growing use among organizations is decreasing that risk, and allowing consultants to experience greater creativity, flexibility, and opportunities than the average full time employee.
Independent Consultants versus Employees
According to the IRS, independent consultants or contractors are defined as workers in an “independent trade, business, or profession in which they offer their services to the general public.” Employees, on the other hand, are defined as individuals whose work details can be controlled or dictated by the employer. Independent contractors differ from employees in the three categories
- Behavioral Control – This category involves control and details of a job, including environment and work hours. Typically an independent consultant determines his or her hours, as well as any job details before the completion of the arranged goal or project. An employee, on the other hand, has set hours, his or her work may be directly supervised by a manager or given specific instructions on how the job should be completed along the way. There may be some core hours for consultants agreed by both parties that may be necessary for the business, but overall they will choose the hours that work best for them. Employees will typically work in a specified organizational location, while many consultants work remotely, whether in the office, home, or off site location.
- Financial Control – Financial control is also an important category that determines the difference between independent consultants and employees. In this area, independent consultants have greater financial control and responsibility. They use their own tools and supplies, pay their own taxes, and often determine their own salary based on current job market values for their services. Employees, however, use company supplies and resources, do not determine their own salaries, but can negotiate rates based on the job market rates, and pay only a portion of taxes, while employers pay the remainder.
- Worker and Employer Relationship – The relationship between employer and worker also determines the classification between independent consultant and employee. This category analyzes the length of employment, compensation package, and whether the work performed is a key component of the business. Generally, independent contractors work on projects or contracts with specified end dates, and are generally not key business functions. Although they do not have benefits as part of their contracts, they have the freedom to work on smaller and multiple projects with multiple employers, if they choose. They also have the opportunity to negotiate more items on their contracts, compared to their employee counterparts. Employees, on the other hand, establish a contract with only one organizations that typically covers a longer time frame, and receive a predetermined benefit package.
Pros versus Cons
- Taxes – Taxes are processed differently among independent contractors and employees. According to Stephen Fishman J.D., employers don’t withhold or pay a portion of federal and state taxes, social security or Medicare taxes for independent contractors, like they do with employees. Independent consultants must keep track of their own income, estimate taxes, report it to the IRS, and pay accordingly. They also receive more business-related tax credits than their employee counterparts that may allow them to reduce their overall tax liability. Employees pay their portion of taxes as the go, typically have less complicated tax returns, and may get more money back from the government at the end of the year due to overpayment during the year.
- Benefits – Full time employees receive a benefits package, including health care, life insurance, workers compensation, disability insurance, and other options as part of their compensation package. Independent consultant will need to purchase separate health care, disability, and other benefits in order to receive coverage. These options are often pricier because the employer does not pay into the benefit programs. Contractors do have the option, however, to choose a more specified coverage that applies to their lifestyle, unlike employees.
- Work environment/hours – One of the perks of independent consultants is a flexible work schedule and environment. Depending on the job, consultants may work entirely or partially from home or another location offsite. They may choose their work schedule completely or they might have only a few set core hours mandated by the employer for meetings or briefings as part of their contract. They also have the benefit of working independently instead of under direct control and manager supervision. Most employees, on the other hand, have a set work schedule and work environment. Some organizations are moving towards implementing flexible work schedules and telecommuting policies, but many of these programs are in the initial stages, and often don’t apply across the entire organization.
- Equipment/Resources – Independent consultants typically use their own equipment and supplies during their contract, and rely on their own resources to complete their jobs. This allows them the opportunity to purchase or access the most up to date equipment and resources to complete their tasks most efficiently. Unfortunately, employees must only use company property, such as laptops and mobile phones, in order to minimize security threats to the organization. Depending on the organization, company equipment may be out of date and less efficient, increasing workload and overall work stress.
- Pay Difference – Compensation typically varies by location, experience, and job. Independent consultants may earn more than their employee counterparts depending on the demand of their skills and their marketability. Since they don’t need any company benefits, they have greater negotiation power, and many organizations will pay more if it means they don’t need to pay taxes and benefits. Employees can negotiate their salaries and benefits only based on the local job market and industry.
- Opportunities – Since Independent consultants work under contract and not for a specific organization, they will often work with several employers at one time, giving them more work and developmental opportunities compared to employees. Although it seems that employees have greater job security since they’re in one place and not waiting for contracts, they have less freedom to explore different possibilities while working, and often have to rely on their organization to provide them with developmental opportunities.
Our current job market has allowed an influx of augmented forms of employment, including freelancing and independent consultant or contract positions. These opportunities are a great benefit for both organizations and workers. Although there are pros and cons to both permanent employees and independent consultants, the current trends show that independent consultants experience greater creativity, work flexibility, and greater career development opportunities that may be a better fit for today’s lifestyle.