Risks of Hiring Independent Contractors in 2021

In more recent times, companies are found to ask their employees to work from home and with the risks posed by the Covid-19 pandemic, it is not uncommon to see companies engage in hiring contractors to aid the remote work culture. One of the major pivots of a business is the workmanship, which can consist of full-time employees or outside contractor. Hiring independent contractors nonetheless, definitely comes with its advantages and demerits. Thus, it may be detrimental to risk employing independent contractors without weighing its pros and cons. This guide provides seven important risks you should know of before hiring an independent contractor, the pros and cons of independent contractors, etc.

Less Control over Independent Workers

Companies with full time employees can effectively oversee their day-to-day activities. On the flip side, engaging independent contractors for hire implies that you cannot exert the same level of control over their work. Doing this may mean you run the risk of treating them as company staff. This is because one of the benefits of being a contract employee is that they can decide certain factors such as work hours and equipment and because of this kind of autonomy, some may prefer to get hired as a contractor instead of employee. There are other benefits of independent contractors but they are risky options.

Worker’s Misclassification

In order to stay compliant with regulations and the authorities when weighing your options between hiring employees vs independent contractors, it’s important that you are acquainted with the labour requirements of the country before you decide to hire an employee or independent contractor. This will save you from the error of misclassifying workers and its backwash as you already know what is required. In a country where people who engage in contract work are furnished with certain benefits, it may be easy to take them as full-time employees. To avoid this, facts need to be researched.


In a situation whereby two legal entities have the right to act as employers, it is referred to as co-employment. This is more rampant among hiring agencies such as PEOs and EoRs who engage in hiring contract employees. This sort of arrangement poses as risk as your company may be found to withhold certain contract employee benefits.

Thus, it is important that if your company engages in the co-employment model, the duties and rights of both contractor and employee are spelt out by the co-employer, such that in the event of an audit, compliance is certain. In addition, the existing engagement between the client company and the contractor is to be clarified to avoid engaging them like they would employees.

Risk of Government Audits

Government Audits are not just as random as they get, they can happen based on the misclassification of a worker. If your company is considered by federal or state labour agencies to have misclassified a worker or involve in hiring subcontractors, you run the risk of an audit which may result in heavy fines and remunerations. This can be avoided by setting guidelines for work engagement with independent contractors and ensuring your workforce is properly classified.

Right to Fire an IC depends on your Written Agreement

Terminating a contract employment at will may not be a considerable option as it depends on your written agreement with your contract employee. When it comes to hiring employees versus independent contractors, the stakes are quite different. The employer does not reserve the right to fire an independent contractor as such right can only be put to use within the confines of the agreement. Going against this will be regarded as a contract breach and a violation of the said agreement.

Liability and Insurance

As an employer, understanding what you are liable for when it occurs to the welfare of your contract employee is important. Why hire a contractor without requisite knowledge of the responsibilities that come with hiring one? Worker’s compensation benefits do not often cater for independent contractors in some countries and so, in the event that workers, for example, independent carriers, get injured in the course of the job, you can be liable for such injuries and get sued. Agreeing on clear terms, especially insurance, will help to avoid this. Where necessary, provision should be made to cater for these contingencies and should be stated in the contract.


Risks of Hiring Independent Contractors in 2021

  • What are the benefits of being a contract employee?

    Several benefits accrue to being under contract employment, some of which include a flexible work schedule that allows room to decide on work hours, personal vacations and even other employment options. Adapting fast to work culture also helps to acquire new skill sets within a short period, which is valuable to personal development. Efficiency can also earn one a permanent position with an organization.

  • What is a contracted employee?

    A contracted employee is one who gets hired by a company to work within a short period of time for a specific purpose. Also known as independent contractor or freelancer, the contracted employee gets hired for a short window because of their specialized skill sets and gets paid for that period. They are members of the typical workforce of any economy, howbeit working on their own terms.

  • How to hire an independent contractor?

    An independent contractor can be hired through various means. However, before going ahead, you need to keep in mind, certain factors. These include checking worker classification in the country you are hiring, drawing up a contract to cater for risks such as liability and insurance as well as clarifying copyright ownership in a confidentiality agreement. After this, you can go ahead to hire your contract employee on job websites, leverage your network of business associates and friends, or better still, employ the services of an EOR like WeHireGlobally.

  • Is it better to hire an independent contractor or an employee?

    Deciding on the best fit for your company ought to be dependent on your business needs. It also depends on the kind of skill sets you are looking for, the type of job you want to get done as well as the time frame. It is important to weigh your options as well as the pros and cons independent contractors before making your choice.

  • Hannah Kohl
    Hannah Kohl. Head of Customer Success. Has extensive experience in the HR and IT industries. Helped 100+ international clients to achieve their global goals.

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