Salaried Employees vs. Independent Sales Reps: Which Is Better?
There is no question that technology has fueled a global gig economy that enables freelancers and small business contractors to engage with enterprises of all sizes. While some businesses benefit from as-needed services from independent contractors and sales representatives, there are some downsides for both companies and contractors. Many businesses gravitate to traditional employer-employee relationships.
Full-time Employee vs. Independent Contractor
While salaried employees and independent contractors perform similar tasks for businesses, several distinct differences define their relationship to and interactions with the employer.
Please mind the ✅ – Benefits and ❌ – Risks connected with both* :
| Salaried Employees | Independent Contractors |
| Working Relationship | |
| ✅ Long-term formal employment: Long-term engagement with defined job roles. An employee is hired to perform a specific ongoing role in a company and is given a job description that clearly defines the scope and nature of their work. | Temporary per-project employment: Short-term engagement. While some contractors work for the same company for years on end, their position in the company is fundamentally temporary. The employer is not legally bound to engage the contractor for a defined period of time beyond that agreed upon contractually. Tasks are often fragmented and short-term. |
| Taxes and contributions | |
| ✅ Employers are responsible for withholding a defined percentage of employee wages for federal and state taxes and for Medicare, Social Security, Worker’s Compensation, medical insurance, and other withholdings. They must issue IRS form W-2 to employees by the end of January of the previous year. | ❌ Independent contractors are responsible for their own taxes, medical insurance, and other contributions. They must submit IRS form 1099-MISC with their tax returns detailing their year’s earnings and pay self-employment taxes directly to the government. |
| Control vs. Autonomy | |
| ✅ Employer control. An employer retains a high level of control over their salaried employees. They set tasks, monitor time, and oversee work completion. Time-tracking software may be used to ensure productivity. The employer defines decision-making and time management. | Personal autonomy. Contractors typically have less oversight than salaried employees and have more control over their time. While the employer may request specific tasks or projects to be completed, they have less control over how the contractor accomplishes the required work. Retain greater autonomy for time management and decision-making. |
| Intellectual Property Ownership | |
| ✅ Employer retains full IP rights for employee innovations: Employees who develop innovative solutions or work on creative projects cede ownership of their intellectual products to the employer. | ❌ Contractor retains IP rights for innovations unless otherwise stipulated: Contractors rarely participate in a company’s production or creative endeavors. If a contractor is inspired while working for a company, they retain ownership of any innovations or creative works that arise as a result. |
| Commitment | |
| ✅ Employee engagement. Employers expect salaried employees to commit fully to the business without conflicts of interest or divided loyalties. Employees may be prohibited from moonlighting with other companies. | ❌ Limited commitment. While many contractors develop long-term relationships with the companies they serve, they are free to engage with other companies. They are not obligated to remain loyal to a single entity. A contractor is not a strategic member of a company’s team and makes minimal contributions to its long-term growth. |
| ✅ Team mentality. Employees are expected to share and model the company’s values and commit to its mission. Key professionals become emissaries for the company in the public domain. | |
| Compensation | |
| ✅ Long-term compensation. In exchange for their loyalty and commitment to the company, employees are compensated with salaries, insurance benefits, retirement packages, opportunities for professional development, and other perks that make it beneficial to remain with the company long-term. | ❌ Short-term compensation. Contractors are typically paid per project and do not enjoy the perks and benefits of full-time salaried employees. They are responsible for their own taxes, insurance, retirement funds, and professional growth. |
An employee or a salaried worker pays Federal Insurance Contributions Act (FICA) taxes just like their employer in equal parts.
The contractor, also called a commission-based worker is responsible for paying self-employment (SECA) taxes.
Check the below infographics for greater visibility:
Risks of Hiring Contractors Over Employees
For many businesses expanding overseas, it may seem sensible to start with local independents in the interest of saving money on taxes, benefits and the cost of establishing a legal entity. However, working with foreign independent contractors has multiple inherent risks.
Compliance Risk
Working in foreign nations can present pitfalls that you didn’t see coming. When you employ foreign workers, you must be certain that you fully comply with national and local laws and regulations regarding taxes and employment guidelines. Failure to meet compliance requirements can put you in a legal bind that can be costly and time-consuming.
Financial Risk
Employing foreign independent contractors gives you minimal control over their behavior or activities and how they represent your brand. They may even work for your competitors and promote whichever products bring the highest commission, losing you money in the long run.
Business Risk
Contractors are temporary employees with limited loyalty to any single entity except their own. Your competition can easily poach high performers, and low performers can harm your brand’s image. High turnover can result in loss of leads and customers and have a destabilizing effect on workforce morale.
Full-time Employee vs. Independent Contractor
✅ – Benefits and ❌ – Risks* :
| Salaried employees | Independent contractors |
| Risks | |
| ✅ Minimal compliance and business risks. No misclassification risks | ❌ May pose high-penalty risks due to misclassification |
While using an independent commission-based sales force may be less expensive in the short run, a dedicated sales team that works exclusively for your brand will save you money in the long run. Moreover, the complexities and challenges are magnified if you take on contractors for projects in multiple countries.
Get the Best of Both Worlds with a Global Employer of Record
A Global Employer of Record (EOR) can provide the ideal solution to your overseas staffing problems. A Global Employer of Record (EOR) is a third party that acts on your company’s behalf to onboard and payroll your chosen foreign talent without establishing a foreign entity for your business.
Partnering with a Global Employer of Record (EOR) can benefit your business in multiple ways:
- Increase the loyalty of your foreign salesforce without having to set up your own legal entity abroad. Delegate employee management to a Global Employer of Record (EOR) to handle the entire scope of employee hiring, retention, replacement, and compensation.
- Build strong brand equity via a globally distributed workforce that represents your company proudly and builds customer relationships across the globe. Retain ownership of your client base after salespeople leave your company.
- Protect your company’s security, IP rights, and client database from unscrupulous contractors without loyalty to your brand.
- Build a hybrid salesforce that is 100% dedicated to your products and brand. Combining the expertise of independent agents or contractors with the loyalty of salaried employees creates a win-win situation that gives you the best of both worlds while mitigating your compliance, financial and business risks.
A Global Employer of Record (EOR) is less expensive than in-country incorporation, allowing you to exit unlucrative markets easily. You can start with a small team or even one person in multiple countries and go global now without waiting for your business to grow.
Global Employment Solutions at Your Fingertips
Working with a Global Employer of Record (EOR) partner can benefit businesses as they expand into new markets. A Global EOR partner is an entity that takes on the legal responsibility of employing workers in a foreign country on behalf of the business. The Global EOR partner is responsible for all employment-related matters, including payroll, taxes, benefits, and compliance with local labor laws and regulations.
Here are some of the benefits of working with a Global EOR partner:
| Benefit | Description |
|---|---|
| Compliance with local laws | Global EOR partners ensure compliance with local laws and regulations, reducing the risk of legal disputes and fines |
| Access to top global talent | Global EOR partners have local knowledge and expertise, making it easier for businesses to find and hire the right talent |
| Faster time to market | Global EOR partners can handle all employment-related matters, reducing the time and resources needed to expand into new markets |
| Lower costs | Global EOR partners can help businesses save money by reducing the need for businesses to hire additional staff or set up local entities |
| Reduced risk | Global EOR partners ensure compliance with local laws and regulations, reducing the risk of legal disputes and fines |
Compliance with Local Laws and Regulations across 190 Jurisdictions
One of the most significant benefits of working with a Global EOR partner is that they ensure compliance with local laws and regulations. This is especially important in countries with complex and ever-changing labor laws. Global EOR partners have the expertise and resources to navigate the legal landscape, ensuring businesses comply with all local laws and regulations.
Access to Top Global Talent
Working with a Global EOR partner provides businesses access to top global talent. Global EOR partners have local knowledge and expertise, making it easier for businesses to find and hire the right talent. They have established networks of local candidates, which can be especially valuable in markets with tight talent pools.
By working with a Global EOR partner, businesses can expand their talent pool and find the best candidates for their positions. This can help businesses achieve global expansion goals and compete more effectively in the global marketplace.
Faster Time to Market
Working with a Global EOR partner can also help businesses reduce the time and resources needed to expand into new markets. Global EOR partners can handle all employment-related matters, such as payroll, benefits, and compliance, allowing businesses to focus on their core operations.
This can result in faster time to market, as businesses can quickly establish a presence in new markets without having to set up local entities or hire additional staff. This can be particularly beneficial for businesses that must enter new markets quickly to take advantage of market opportunities or stay ahead of competitors.
Lower Costs
Expanding into new markets can be costly, especially if businesses need to hire additional staff or set up local entities. Working with a Global EOR partner can help businesses save money by reducing the need for additional staff or local entities.
Global EOR partners handle all employment-related matters, including payroll, benefits, and compliance, which can significantly reduce the cost of expanding into new markets. This can be particularly valuable for businesses that are expanding into multiple markets simultaneously, as it can help them save time and resources.
Reduced Risk
Expanding into new markets can be risky, particularly if businesses are unfamiliar with local laws and regulations. Working with a Global EOR partner can help businesses reduce the risk of legal disputes and fines by ensuring compliance with local laws and regulations.
Global EOR partners have the expertise and resources to navigate the legal landscape, ensuring businesses comply with all local laws and regulations. This can help businesses avoid costly legal disputes and fines, which can significantly impact their bottom line.
In summary, working with a Global EOR partner can benefit businesses as they expand into new markets. By ensuring compliance with local laws and regulations, providing access to top global talent, reducing time to market, lowering costs, and reducing risk, Global EOR partners can help businesses achieve their global expansion goals and compete more effectively in the global marketplace.
