Not so long ago, independent contracting was a much more fringe form of employment, oftentimes reserved for seasonal and freelance work. However, in recent years, the concept has taken center stage in the start-up culture of Silicon Valley and beyond, as companies such as Uber and DoorDash have relied almost exclusively on independent contractors compared to regular employees.
While it may seem that independent contracting is on its way to becoming the new norm, more and more companies are already looking to leave this model behind, in favor of hiring actual employees.
Why This New Trend?
If there is only one thing you know about independent contractors, it is probably the litany of class-action lawsuits that have been filed on their behalf. Lyft, Homejoy, and countless other on-demand services have been on the receiving end of these, but this is hardly the main reason for many of them making the switch to W-2 employees.
The real reason? It’s simply a better business model for most companies.
Many employers have decided that the benefits of on-boarding employees, as opposed to outsourcing contractors, can often drastically outweigh the costs. These benefits being primarily two-fold: agility and efficiency.
Hiring employees, instead of contractors, gives a business the agility to dictate schedules and operations in full, as opposed to merely offering incentives. For example, say a rideshare company wanted to deploy drivers to certain sections of a city. In an independent contractor model, they don’t actually have the ability to dispatch drivers to the area; they are forced to offer incentives, such as pay bonuses, in hopes more drivers will head in that direction.
Alternatively, a company that has actually brought on a team of w-2 employees can set schedules, routes, areas of operation of drivers in full.
The efficiency benefit comes in the form of training that employers can offer. With contractors, training, and best practices can be non-existent. Electing to hire, as opposed to contracting work out, gives you the control to iron out operational kinks, and optimize procedures.
How Do I Make the Switch?
The first step any business owner should take when switching from using independent contractors is to write out all the reasons why you are doing this. We already discussed both agility and efficiency but try to get as specific and tailored to your own business as possible. Both customers and contractors alike will want to know what triggered this shift, and you should be readily prepared to have clear and concise answers to these questions. Also, spelling this out will help you to focus on the goals you want to achieve via this process.
From there, the process can be as simple as any business looking to hire its first employees.
You should create an employee handbook to layout best practices, as well as protecting yourself from any legal action.
Additionally, and well not completely necessary, you’ll want to consider what sort of benefits you will be offering employees. Many independent contractors prefer that method of work since they get to make their own hours and such, so a competitive benefits package is your best chance at convincing them to come aboard.
Last, but certainly the most important, you will need to set-up your payroll tax system. Unlike the simple process of sending a check for services provided, with w-2 employees, you will be responsible for about half of the taxes paid on the hourly rate. Be sure to confirm both your local and state tax codes before proceeding.