Independent Contractor vs Employee vs Agency: Which Is Right for Your Project?

When you have a project, you probably assign the work to an employee. For large projects, you may use a traditional agency. That’s all pretty straight-forward. What many companies aren’t clear about is when, or if, they should engage independent contractors (ICs).

What can be a little confusing is that freelancers aren’t just for small or low-impact projects anymore. Companies are contracting these ICs to create new revenue streams, bring products to market faster, and more.

This quick guide can help you clearly decide which resource is best for each project.

Independent contractor or employee?

Many people get stuck deciding when work should be done in-house, or delegated to a freelancer. First, let’s be clear on how freelancers work. They are self-employed individuals who function as their own business and they typically:

  • Pay self-employment tax
  • Set their own rates
  • Work remotely at their own location
  • Choose which project and clients they want to work with
  • Work with multiple clients

That said, let’s look at why companies normally utilize freelancers. These skilled professionals provide a cost-effective way to:

1. Scale quickly: The rise of freelancer websites and other technology solutions enable you to engage skilled talent within three days. Other hiring channels average up to six weeks in comparison.

2. Increase productivity: Freelancers are adept at quickly understanding a project’s scope and diving into the work. In an Oxford Internet Institute (OII) study of Fortune 500s, participants reported around 60% of the work was completed and delivered faster. Upwork clients find work is delivered four times faster on average. Independent contractors can ramp up swiftly because the skillset you contracted them for is what they specialize in and what they do nearly every day.

3. Access specialized skills: Rapidly evolving technology and resource limitations make it nearly impossible for any one company to have every needed skill in-house. Freelancers provide a convenient way to fill talent gaps and access skills you may just need for a special project. Since ICs work with multiple clients, their experience can provide new insights and possibly improve project results.

4. Stretch resources: When you direct-source talent through online platforms, you avoid traditional agency markups. The platforms also streamline and automate engagement processes, which cuts down the time your staff spends on related administrative tasks. Between direct-sourcing and automation, the OII study reports companies save an average 60-70% compared to traditional channels.

If you’re still unsure whether an employee or independent contractor should do the work, consider these questions:

Assignment examples: agency, IC, employee

Imagine you needed to complete a design project. Here’s a general guideline for assessing what type of talent may be the best choice:

Keep in-house: Projects that are foundational to your company or projects that require a thorough understanding of your users or customers. Examples: UX design for a major product line, and materials for major events that you’re hosting.

Delegate to freelancers: Projects that are not considered core or ongoing work. Examples: Long-form content, promotional videos, and infographic design.

Delegate to agencies: Large or complex projects that require a team of specialists. Examples: Brand campaigns, major social media stunts, and logo redesign.

Work as a hybrid team: Some project teams require collaboration between employees and freelancers. In such teams, employees perform the ongoing work that moves your company forward. Freelancers perform project-based work requiring specialized skills. Examples: Launching a new video campaign within days, if not weeks; and scaling quickly to meet an aggressive deadline.

For tips on building hybrid teams, download Building a Top Design Team with Freelancers. You’ll see how Upwork’s creative team vets freelancers, the communication tools used to keep projects on track, how they maintain work quality with remote workers, and more.


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Author: Brenda Do

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