While skilled workers in any number of fields are available to take on contract work in the wake of the economic downturn, it's important to know what distinguishes a freelancer from an employee.
Indications are that the recession is ending, yet many companies are still cautious about hiring full-time employees and instead finding savings using contingent workers - part-timers, freelancers and contractors.
These groups have consistently made up about 30 percent of the workforce in recent years, according to the U.S. Government Accountability Office, but in 2009, the number of people working part time because they couldn't find full-time work almost doubled, from 4.5 million to nearly 8 million. That has provided a vast resource for companies looking to make contingency-based hires.
It's important to note that freelancers are no longer confined to the creative fields of writing, design and photography. Instead, they can also be found in areas such as finance, law and human resources. Websites such as Desk.com and Elance.com can help you find and manage them. You'll save on taxes, health insurance, paid vacation time and other benefits. Plus, you can contract a freelancer for a fixed amount of time, on a per-project basis or whenever you need a skill set that your full-time staff lacks. However, you should be prepared to invest upfront time in interviewing skilled workers, bringing them up to speed on your systems and processes, and scheduling them when you need them.
There are also tax distinctions between freelancers (independent contractors) and employees, based largely upon who has behavioral and financial control over the worker. (When in doubt, consult your CPA.) If you agree to a set of expected results, including deadlines, but do not establish how and when the work takes place, you are likely dealing with an independent contractor. In addition, freelancers pay for their own equipment and supplies, and realize a profit or incur a loss on any project. They also pay their own income tax; you, as the employer, file IRS Form 1099 for independent contractors.
On the other hand, if you offer benefits such as health insurance to a part-time or full-time staff member, it indicates to the IRS that you view the worker as an employee rather than a freelancer. And when you hire an employee, you file the familiar W2 and both withhold and pay employment taxes, along with any benefits you provide.
For more information, see IRS Publication 1779, "Independent Contractor or Employee?"
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