In a world where 70% of businesses have reevaluated their hiring strategies post the 2020 pandemic, the debate on the merits of hiring an accounting employee versus an accounting contractor is more pertinent than ever. As a business owner, deciphering the intricacies of these two classifications can seem like an uphill task.
However, it's crucial to remember that employers don't "choose" how to classify workers. Instead, the "nature of the relationship" determines whether a worker is an employee or a contractor.
Firstly, let's unravel the key factors that determine the nature of the relationship. As outlined by the Internal Revenue Service (IRS), the three main factors include Behavioral Control, Financial Control, and the Type of Relationship.
- Behavioral Control addresses who holds the reins on what the worker does and how the job is accomplished.
- Financial Control investigates who administers pay, whether expenses are reimbursed, and if the worker uses his or her tools.
- Lastly, the Type of Relationship delves into whether the worker receives additional benefits and if the performed work constitutes a key element of the business.
Understanding an Accounting Employee
An accounting employee is typically an integral part of the firm's ecosystem. They are subject to the behavioral control of the employer, which implies the employer's authority over when, where, and how the work is performed. This control extends to setting work hours, directing the workflow, and having the ability to review and assess work performance.
Financial control also resides largely with the employer, wherein the accounting employee is paid a regular salary or hourly wage, often with benefits such as health insurance, pension plans, paid time off, etc. Moreover, employees are usually provided with the necessary tools and resources by the employer to perform their duties.
In terms of the type of relationship, an accounting employee is usually a long-term addition to the team and is expected to perform tasks that are fundamental to the business. This solidifies their position as a cog in the overall business machinery, contributing directly to the business's core operations.
Deciphering an Accounting Contractor
In contrast, an accounting contractor is a more independent entity. While they might perform similar tasks as an accounting employee, the nature of their relationship with the business is fundamentally different.
When it comes to behavioral control, contractors generally have more freedom. They are hired to complete a task or a project, and while the end results are stipulated, the way to achieve them is left to their expertise. They have the autonomy to set their work hours and are not bound by an employer's structured schedule.
Financial control is also skewed towards the contractor. They determine their pay rate and often invoice the business for their services. They bear the expenses related to their work and usually supply their tools. Their earnings are also not subject to withholding, and they are responsible for paying their taxes.
Examining the type of relationship, an accounting contractor doesn't usually receive additional benefits from the business, such as healthcare or retirement plans. Their association with the business is often limited to a specific project or a defined period.
Navigating the Accounting Employee vs. Accounting Contractor Maze
It's vital to bear in mind that the decision to classify a worker as an employee or a contractor ultimately resides with the business, though this should be based on the nature of the relationship rather than a subjective choice.
Accounting firms stand to benefit from both types of engagements depending on their specific needs. An accounting employee offers stability, consistent service, and alignment with the company's culture and goals. On the other hand, accounting contractor brings in unique expertise, flexibility, and potentially lower costs as they handle their expenses and benefits.
Look out for documentation
Thorough documentation is key to establishing this relationship. The burden of proof lies on the employee, and maintaining comprehensive records can protect the business from potential regulatory scrutiny or disputes.
This tug of war between hiring an accounting employee versus an accounting contractor ultimately hinges on your firm's specific needs, resources, and long-term goals. Understanding these differentiating factors and adhering to the guidelines can help you navigate the maze of hiring accounting talent and truly transform your business operations.
Remember, every accounting firm is unique, and so are its workforce needs. So, assess your requirements, weigh your options, and make a decision that aligns with your firm's vision and ethos. The right talent, whether it's an accounting employee or an accounting contractor, can be a game-changer in your journey towards offering better service and achieving business growth.
How to decide between hiring an accounting employee or an accounting contractor
As you can see, there are pros and cons to both options of hiring an accounting employee or an accounting contractor. The best choice for your business depends on several factors, such as:
- Your business needs: What are your short-term and long-term goals as a business? What kind of accounting tasks do you need to complete? How often do you need them? How complex are they? How urgent are they?
- Your budget: How much can you afford to spend on hiring talent? How do you want to pay them? How do you want to manage their taxes and benefits? How do you want to handle the legal and regulatory aspects of hiring?
- Your preferences: What kind of relationship do you want to have with your talent? How much control do you want to have over their work? How much flexibility do you want to have in adjusting their workload or compensation? How much loyalty do you expect from them?
Based on these factors, you can weigh the pros and cons of each option and decide which one suits your business better. However, keep in mind that you do not necessarily have to choose one or the other. You can also hire a mix of accounting employees and accounting contractors, depending on the specific needs of each project or contract.
The Decision is Yours
Hiring talent is one of the most important decisions for any accounting or finance firm. It can have a significant impact on your business performance, customer satisfaction, and competitive advantage.
Therefore, it is essential to understand the differences between hiring an accounting employee and an accounting contractor, and to compare the pros and cons of each option.
If you need more help or advice on hiring talent, please contact us today. We are a professional accounting staffing agency that can provide you with high-quality accounting talent at affordable rates. We can help you find the best accounting employees or contractors for your business needs.
