Independent Contractors vs. Employees Pros and Cons
Business owners must determine whether to hire appraisers as employees of the company or as independent contractors.
Because many appraisers are self-employed or run small businesses with few staff, recruiting and staffing employees can present a unique set of challenges.
Business owners must determine whether to hire appraisers as employees of the company or as independent contractors. According to a recent article in Valuation magazine, businesses are increasingly taking the independent contractor option whenever possible due to the significant savings and flexibility for the employer.
However, there are pros and cons to both angles.
Benefits for appraisal firm owners and managers going the independent contractor route, can include:
- Costs savings. Independent contractors must manage and pay their own taxes and generally do not receive medical or retirement benefits.
- Greater staffing flexibility. Working with independent contractors allows more leeway in taking on or letting go of workers, a significant advantage in the valuation profession where workload can fluctuate greatly.
- Reduced liability. Because independent contractors are essentially free agents, they are not covered by federal and state laws protecting employee rights.
While the benefits may make hiring independent contractors seem like a no-brainer, appraisal business owners and managers should also seriously consider the cons, which can include:
- Less control. “Independent contractors work autonomously, so unlike employees, they determine how best to manage their time and complete assignments, without much input or supervision from the firm manager.
- Potential loss of good appraisers. While appraisal firm managers have staffing options, independent contractors have that same flexibility in taking on and turning down projects. This can cause some disruption in a business setting and inconsistency in work performed by different independent contractors.
- Contract restrictions. Unlike employees, who might work “at will” depending on the state, a relationship with an independent contractor is determined to the letter by terms laid out in the agreed upon contract.
- IRS scrutiny. The IRS sets strict standards for classifying and paying independent contractors. Appraisal firm managers must make sure they remain compliant so they don’t raise a red flag for a government audit – or worse – risk litigation for unpaid overtime and benefits due to misclassification.
Before making any decisions about what classification of workers to hire, appraisal firm managers should closely examine their business and staffing needs in correlation with the IRS’ standards.