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Hiring Freelance Workers in Your Business

"Alternative employment arrangements" increase flexibility and reduce costs


In 2001, author Dan Pink chronicled the growing ranks of people who work for themselves, in the popular book Free Agent Nation. While you may have started your own business to become a part of the "nation," you can use freelance workers or others in "alternative employment arrangements" to help meet some of your staffing needs.

Who Are Freelance Workers?

Freelance workers may be in-between jobs, permanent full-time freelancers, stay-at-home parents looking for flexible work options or any combination of the three. They usually will work from their own home or office space, but in certain cases can also be onsite. According to the United States Bureau of Labor Statistics (BLS), in 2005 there were 10.3 million independent contractors in the U.S., representing about 7.5 percent of the total labor force.

Different Categories of Freelance Workers

The Bureau of Labor Statistics lists four categories of workers in "alternative employment arrangements."

  • Independent Contractors: The U.S. Internal Revenue Service defines the role of independent contractors this way: "A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result."
  • On-Call Workers: These are "Workers called to work only as needed, although they can be scheduled to work for several days or weeks in a row," according to the Bureau of Labor Statistics.
  • Temporary Help Agency Workers: The BLS describes this group as "Workers paid by a temporary help agency, whether or not their job actually was temporary."
  • Workers Provided by Contract Firms: These are "Workers employed by a company that provides them or their services to others under contract and who are usually assigned to only one customer and usually work at the customer’s worksite," the BLS says.

For more information on definitions and how to decide what type of worker is right for you, BLS offers the following documents:

Be careful to not hire a worker as an independent contractor when that work should rightfully be done by a full-time employee, since that can have tax implications for your business. About.com’s Guide to Small Business Information offers some illumination on the subject: Employee vs Independent Contractor

What Freelance Workers Do: As your business opportunities grow, you may want to consider hiring independent contractors or other "alternative" workers for projects that don’t require the labor of a full-time employee. This includes long-term projects or a more labor-intensive project that might last only a few weeks. Creative fields such as writing, graphic design and Web design are often full of freelance workers, and freelance labor is likewise common in computer programming, consulting and office administration.

How to Find Freelance Workers: Finding a good independent contractor or other freelance worker can sometimes require creative thinking. If you have former colleagues from previous jobs, see if they’re interested in taking on some additional work if the project can be done on nights or weekends. There are also several Web resources that allow companies to post jobs, search through databases and manage projects. These include Elance.com, FreelancerRatings.com, Guru.com and iFreelance.com. You also may want to consider using a temporary agency.

Why Freelance Workers Might Be for You: Independent contractors and others with alternative work arrangements offer you flexibility at a reduced cost. If you know you will need some design help to update your Web site after you release a new product, you can sign an experienced freelancer for that discrete project without having to worry about keeping that person on the payroll over the long-term. This allows you to hire someone with more experience at a higher rate than you’d likely be able to afford on an ongoing basis.

Additionally, such workers can save you significant amounts of money. They do not receive health care and similar benefits. Your company also is not responsible for paying their Social Security and Medicare taxes, or for offering unemployment benefits. At the end of the year, instead of filing a W-2, independent contractors should receive a 1099 form. When evaluating the tax status of other alternative arrangement workers, decide if you had an employer-employee relationship with them during the year. If the answer is no, then they should receive a 1099. The IRS offers an FAQ on the 1099. When in doubt, talk to your accountant.

Freelance Contracts

The contract you draw up for any alternative arrangement worker you hire is very important, since it should specifically describe what duties the person will perform, their wage and deadlines. The contract should clarify who owns the work the person produces, whether the worker can use this work elsewhere and any confidentiality agreements. The government leaves it up to the employer to determine who qualifies as a full-time worker. Independent contractors must meet certain criteria to demonstrate their independent status.

Think Globally

A growing number of large U.S. companies are looking to overseas workers to help reduce their costs. International labor is a cost-saving option for you, too. Overseas firms are helping American companies with responsibilities such as writing, answering phones, graphic design and software development. In addition to saving on labor costs, your firm may gain additional flexibility by taking advantage of the time change associated with overseas workers, so your business can very quickly become a 24-hour operation.

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