Salaried Employees vs Independent Sales Reps: Which is best for your global enterprise?
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 down sides for both companies and contractors, and many businesses gravitate to traditional employer-employee relationships.
Employee vs Contractor
While both salaried employees and independent contractors perform similar tasks for businesses, there are several distinct differences that define their relationship to, and interactions with, the employer.
Please mind the ✅ – Benefits and ❌ – Risks connected with both* :
|Salaried employees||Independent contractors|
|✅ 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 are obligated to issue IRS form W-2 to employees by the end of January for 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 they 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. Decision-making and time management are defined by the employer.||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.|
|✅ Employee engagement. Employers expect salaried employees to commit fully to the business, with no 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, and 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.|
|✅ 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.|
Employee or a salaried worker pays FICA taxes just like their employer in equal parts.
Contractor, also called a commission-based worker is responsible for paying self-employment (SECA) taxes.
Check the below infographics for a greater visibility:
Risks of Hiring Contractors Over Employees
For many businesses who are expanding overseas, it may seem sensible to start off 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 risks. Working in foreign nations can present pitfalls that you didn’t see coming. When you employ foreign workers, you need to be certain that you are fully compliant 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 risks. 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 risks. Contractors are temporary employees with limited loyalty to any single entity except their own. High performers can be easily poached by your competition, 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.
Employee vs Contractor
✅ – Benefits and ❌ – Risks* :
|Salaried employees||Independent contractors|
|✅ 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, if you take on contractors for projects in multiple countries, the complexities and challenges are magnified.
Get the Best of Both Worlds with a Global PEO
A global Professional Employment Organization (PEO) can provide the ideal solution to your overseas staffing problems. A global PEO is a third party that acts on your company’s behalf to onboard and payroll your chosen foreign talent, without the need to establish a foreign entity for your business.
Partnering with a global PEO 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 PEO, 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 with no loyalty to your brand.
- Build a hybrid salesforce that is 100% dedicated to your products and brand. By combining the expertise of independent agents or contractors with the loyalty of salaried employees, you create a win-win situation that gives you the best of both worlds, while mitigating your compliance, financial and business risks.
A global PEO is less expensive than in-country incorporation, and gives you the flexibility to easily exit unlucrative markets. 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.
Express Global Employment is the way to go
Expanding to global markets can be a lucrative business move, but it can also be a complicated process with multiple risks and pitfalls. Acumen International offers a creative global PEO solution to companies like yours, to help you grow your business globally with minimal risks and maximal profits.
With over 20 years of experience in global employment services and a global presence in 190 countries, Acumen International is a world leader in global employment solutions. Contact us today, and learn what we can do to help your business expand and thrive abroad.