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The pros and cons of hiring independent contractors

When filling a role in your company, there are many decisions to make. Not only do you want to find the right candidate to complete the job, but you want to ensure that you hire them under the best category to fit your business needs.

Choosing to hire an independent contractor or an employee is a significant decision since today more, and more companies choose to bring on independent contractors – and for a good reason.

There are pros and cons to this decision.

Let’s explore them below.

What is an independent contractor

Independent contractors are self-employed workers.

When hiring them, you have the right to control and direct the result of their work, but no legal rights to demand what will be done or how it will be done.

You won’t serve the role of their boss – even if you hire them for ongoing work for your company.

Also, compensation paid to independent contractors is subject to self-employment tax. This is unlike hiring an employee in which you are responsible for covering various costs, including income tax withholding and FICA (Social Security tax and Medicare).

Independent contractor vs employee

While an independent contractor and employee can complete the same duties, there are key differences between the two that you want to consider when making your decision.

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Pros of hiring independent contractors

Here are some of the many advantages associated with hiring independent contractors.

You might save money

While you might pay your independent contractors more per hour or per project, you will likely save in the end since you don’t have to pay employer-provided benefits, have office space available, provide equipment, and the like.

The benefits paid to employees can increase your payroll costs by 30% or more.

You face fewer legal problems

Usually, you will reduce your

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Contractors: the pros and cons of using an umbrella company

Updated 01 October 2020

4min read

Nick Green

Under Debbie's Blue Umbrella

As a contractor, you will probably have to operate via a limited company rather than be a sole trader. You could set up your own one-person company, or use a UK umbrella company. An umbrella company gives you the option of having an employer while still working on a contracted basis. That means you don’t have to worry about tax returns, because they’ll take care of it for you. But is being a contractor through an umbrella company all it’s cracked up to be? Let’s find out.

What is an umbrella company and how does it work?

Umbrella companies act as third party employers for contractors. As the contractor, you can still choose the projects you work on, but you have an employer taking care of your employment admin.

All umbrella schemes work in the same way, no matter whether you are a builder, IT contractor, graphic designer or whatever. When you’re contracted to work on a project, the umbrella company will invoice your client for the work and collect payment. You’re enrolled on the umbrella company’s PAYE system and they pay you an income from the invoice after deducting items like tax, National Insurance contributions and agreed fees. They will also deduct any applicable expenses, but these will normally need to be agreed by the client first.

What tax do I pay working under an umbrella company?

Even though you’re a contractor, HMRC considers you a permanent UK employee when you work under an umbrella company. You’ll be given a tax code and pay a basic, higher or additional rate based on your income – just as you would if you were employed by a company full or part time. 

How much take home pay would I

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