How to Determine the Cost of Hiring Independent Workers

By MBO Partners | October 1, 2021

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There are direct and indirect costs that must be considered when engaging and hiring independent workers. Independent professionals help organizations realize a competitive advantage among their peers by providing access to specialized, in-demand talent, staffing flexibility, and better control over employment costs. However, in order to make the best use of this valuable talent pool and realize cost savings, it is important for enterprises to understand the direct and indirect costs associated with various independent contractor engagement methods. Below, we explore two of the most common approaches to independent contractor engagement and offer a cost-savings solution.

2 Approaches for Engaging Independent Workers

1. Rogue engagement

With rogue engagement, an enterprise does not have a centralized independent contractor engagement program and there is little to no oversight as to how workers are engaged. This leads to two main problems.

First, when managers who are in need of talent are left to their own devices, independent professionals may be engaged as independent contractors even though they are not fully qualified to work independently. This puts the enterprise at risk for misclassification, which can be extremely costly. Second, because independent contractor spend is not strategically managed, it becomes very difficult to track spend in this category and to realize cost-savings opportunities.

2. Restrictive engagement

With restrictive engagement, an enterprise relies on a strict, one-size-fits-all program where independent professionals who do not meet the requirements to be engaged as an independent contractor are all brought on as W-2 employees on a payroll program. The main problem with this engagement method, aside from costly payroll markups, is that many of these workers don’t want to be engaged this way—they want to work independently.

These workers are then more likely to take their services elsewhere or look for ways to circumvent the program. Managers may also feel the need to sidestep the program in order to keep their independent workers happy. This can lead back around to rogue engagement, high misclassification costs, and decreased spend visibility.

Cost-Effective Independent Contractor Engagement Options

Ideally, organizations should offer flexible engagement options that appeal to a broad range of independent work engagement and worker types. This helps enterprises mitigate the risk of misclassification, avoid costly payroll markups, and give independent talent options to work the way they want.

To learn more about the costs associated with different independent contractor engagement methods and review a case study to see cost savings in action, check out our guide: The Direct and Indirect Costs of Independent Contractor Engagement Methods

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