question

My business is a global travel agency. Is it better to have a team of independent contractors or regular W2 employees when hiring a large number of workers?

Ileaa Swift

Swift Travel Deals

answer

It depends. Each group has advantages and disadvantages. Independent contractors are typically cheaper because you aren't required to pay payroll, Social Security, or unemployment taxes nor do you need to provide overtime or traditional benefits (e.g., health insurance, paid time off, etc.). They also provide more flexibility as you can simply hire them when you need work done. Independent contractors seem to be gaining in popularity because a lot of recent start-ups like the cost-savings and flexibility they provide.

There are advantages to hiring employees though. Permanent workers ensure that you have access to a stable workforce. Such employees should be more loyal and committed to your company. You also have more control over what employees do. For example, you can closely supervise and monitor employees, provide training and development for them as needed, and dictate what they work on and when. Independent contractors typically have autonomy and discretion regarding how they carry out the work you've hired them for, and they could have multiple projects they're working on at any particular time.

One word of caution for you in terms of how you treat independent contractors: If you claim them as independent contractors for IRS purposes, but exert a lot of control over what the worker does or how he or she does it, then they could be classified as employees in the future. In that situation, you'd have to pay a significant amount of money in back taxes and penalties because you benefited from treating them as employees without paying the taxes associated with that classification.

Overall then, it really boils down to whether or not your need for labor is long-term and the control you want over what these workers do. If it's a short-term need and you're OK with how the work is accomplished, you should probably go with independent contractors.

About the author

Kevin Henderson is an assistant professor of management at the University of St. Thomas Opus College of ­Business.