How to Get the Most Out of Your Staff: Hiring Freelancers for Tax Breaks (& More)
Whatever size business you operate, having the right people makes all the difference. When you’re a remote or small business, finding — and paying for — employees becomes a challenge. Not so with freelancers, however. There are clear tax benefits to hiring freelance collaborators instead of full- or even part-time employees. But the benefits don’t stop there. Here’s more on why hiring freelancers can boost your business — even on a budget.
Skip Paying High Taxes
When you employ regular, full-time staff (and even part-time in some areas), you are responsible for paying a list of employment taxes, the IRS explains. Payroll taxes include fees for social security, Medicare, federal unemployment, and state unemployment. Your company also withholds part of your employees’ paychecks to satisfy employee tax payment requirements.
Not only do you need to keep meticulous records — and have the funds to pay these taxes — but you might also need someone to handle these responsibilities for you. Hiring a payroll or accounting staff is another expense on top of what you already pay for employees, though.
Even hiring one staff accountant can run you an average of $50,843 per year — and you’re paying them to process the rest of your team’s wages. With freelancers, you can pay via an online service or platform like Stripe, PayPal, or Skrill, for example. A few clicks are all it takes to settle accounts and get things accomplished.
Avoid Exhaustive Paperwork
Along with the withholdings of your employees’ wages and your tax payments, you also have paperwork to worry about when hiring regular employees. For each employee, you must:
· File a W-2, a wage and tax statement
· Transmit a W-3 (wage and tax transmittal) and W-2 to the Social Security Administration
· Deposit withheld wages to social security and Medicare funds
· Report and pay Federal Unemployment Tax (FUTA) (separately)
With this much paperwork to deal with, it’s no wonder businesses of all sizes are opting out. From computer and IT work to administrative, customer service, and project management industries, more companies than ever are hiring freelancers, Fast Company confirms.
How Hiring Freelancers is Simpler
According to the federal government, freelancers are “independent contractors.” As such, you don’t need to file extensive paperwork on the wages you pay them. In fact, the paperwork is exceptionally slim. If you pay any single contractor $600 or more in a calendar year, you must file a Form 1099-MISC — but that’s it.
Independent contractors are responsible for their own taxes under self-employment tax rules, per Credit Karma. In short, you, as the contracting party, don’t need to worry about their tax paperwork or responsibilities.
Unemployment is also a thing of the past with freelance workers — you aren’t technically an employer. Therefore, you don’t have a responsibility to independent contractors to cover their unemployment costs.
Of course, you need to ensure that your freelance hires fit the IRS’s definition of an independent contractor.
Why Freelancers Are a Better Fit
Instead of hiring and firing people as necessary throughout the highs and lows of your year, you can bring on freelance staff as needed. Most of the time, you can hire freelancers with a set contract, involving terms both parties agree to. The contract sets out the scope of the project, the fees required, and how long you’ll work together.
Some freelancers have ongoing relationships with businesses or entrepreneurs. Others work on a single project or task for you, receive their payment, and move on. The good news is how it works is entirely up to you and your business needs.
With freelance professionals, you also avoid many overhead costs. Office space, for example, often comes at a premium. Most freelancers work remotely or virtually, like 3.9 million working Americans now do, and the trend is still on the uptick. These freelancers pay their own internet bills, buy their own computers and software, and don’t require IT support, either.
Finding the Right Freelancers
Tax breaks are the primary benefit of hiring independent contractors instead of employees. Finding qualified gig-based employees is also simpler than hiring (and firing) employees. The right freelancing sites can help you access talented and reliable freelancers for a range of projects including administrative work, sales and marketing, and web development.
You can source people who are experts on a job or task you need to be completed. Often, you can see samples of their work or obtain references. And if the partnership turns out not to be a good fit, it’s easy to stop working with that person and choose someone else. With 56.7 million freelancers in the U.S., there’s plenty of talent to go around.
Working with freelancers can be an affordable and straightforward solution to staffing woes. You can establish your budget, choose the right professionals for every job, and avoid paying excess taxes for full-time staff you may not need.