The Downside of Hiring Freelancers vs. Full-Time Remote Employees

Perhaps you’ve been contracting freelancers for different areas in your business, but is it really a sustainable option in the long term?

As the “gig economy” continues to rise, more workers are veering off the path of traditional employment in favour of freelance work, either out of choice or out of economic necessity. This has impacted the talent acquisition and retention process for many businesses, and it has only magnified the issues inherently found in freelancing.

Its growing popularity raises concerns about the insecurity and instability associated with freelance work. McKinsey reports that many of the jobs created on online work platforms such as Upwork, which promotes and encourages freelance work, do not add up to a sustainable living income. 

Worker benefits and policy provisions also need to be improved when it comes to freelancers. And so the flexibility that freelancing provides to workers can equate to volatility from the employer’s perspective.

While these issues may not directly impact business owners, they can be cause for concern when considering the long-term retention of employees as well as the growth and scalability of an organisation. It’s time to take an in-depth look at freelancing versus international remote employees, and why the latter might be the better option for businesses.

What’s the difference between freelancers and international remote employees?

At the surface level, freelance work and international remote employment have similar characteristics: They provide workers autonomy and flexibility over their schedules while giving them the opportunity to take on projects or employment from outside their home country.

However, that is where their similarities end. At its core, freelance work and international remote employment are different from each other. Freelance work enables individuals to take on different clients from multiple companies, which means that freelancers need to allot resources to market their services, manage their own schedules and send invoices.

International remote employment enables individuals to work full-time for a particular organisation or employer. International remote employees enjoy the same job benefits and security as their local counterparts, such as tax withholdings, social security contributions and paid leaves.

Keeping these distinctions in mind will help you clearly assess the viability of contracting freelancers or hiring international remote workers.

Understanding the pros and cons of freelancing

Freelancing is rising in popularity, but it’s important to understand why. According to the Financial Times, even though satisfied freelancers and younger workers view freelancing as a more stable option than a full-time job because of its potential for diversified clients and income streams, 40% of freelancers would still prefer to have a full-time job.

The reason so many freelancers leave their full-time jobs and go into freelance work is because of their working conditions, including:

• Job dissatisfaction
• Poor mental health
• Poor pay
• Unethical leadership

Improving these working conditions, or finding an organisation that offers a healthy workplace, could change the trend toward freelancing. In particular, if your business is geared towards sustainable growth featuring trustworthy and regular staff members, then freelancers may not be the best option for you.

Freelancing also involves numerous legal grey areas and issues that business owners need to be aware of.

Misclassifying employees as freelancers can negatively impact workers, business owners and even society at large. Proper classification will identify the responsibilities of both the worker and the hiring party. 

For example, freelancers are typically not covered by basic labour standards and laws, depending on your country and government. Freelancers are also responsible for paying their own taxes and contributions both as an employer and an employee. As such, their actions and business decisions impact their opportunities for profit or loss. 

On the other hand, employees are protected by labour laws and regulations and are managed by their employers. This includes the employee’s scope of tasks, how and when they accomplish their work and the rate of pay. 

Misclassifying employees as freelancers or contractors can have legal ramifications. Workers can miss out on important benefits such as health insurance and paid leaves while businesses might incur fines, penalties or even lawsuits for wrongful classification. Even local and national governments are negatively affected by worker misclassification as it results in a loss of funding for social insurance systems in the country.

It’s also important for you to clearly establish payment terms with freelancers to avoid legal disputes. You need to consider the rate of pay, invoicing process and whether or not the freelancer is registered for taxes.

This can make it more challenging for you to hire freelancers regularly, especially once your business starts growing and will need full-time employees to effectively carry out daily tasks. 

Consider where the future of the workplace is headed: Remote work

Remote work is a solution that can provide employers with the best of both worlds: It enables them to provide the flexibility that many workers now demand while allowing them to hire top talent for full-time positions in their organisation.

Working from home (or from anywhere) can positively impact three key parties:

• Individuals - Remote work allows employees to live anywhere while being able to access great career opportunities. It also allows people a better quality of life as they create a work schedule that suits their needs while removing the stress of daily commutes to a physical office location. 
• Organisations - Because many remote workers are happier and more satisfied with their work arrangements, it increases the likelihood of boosting their productivity and performance. This positively impacts the growth and development of businesses while allowing them to cut overhead costs.
• Societies - Work-from-anywhere models can potentially reverse the brain drain that impacts emerging markets, small towns and rural communities. Remote work can also help the environment as more people cut down on their commutes since cars generate a lot of emissions.

It’s also crucial to be aware of the potential challenges of the work-from-anywhere model so that you can effectively address them:

• Communication and problem-solving - It can be challenging to set synchronised meetings or even social interactions when employees are located all over the world. It’s crucial for organisations to adapt to asynchronous communication, whether that involves using a Slack channel, a customised intracompany portal or collaborative tools such as Google Workspace.
• Socialisation and mentorship - Remote work can be isolating if employers are not proactive in creating a dynamic and thriving work environment for their remote workers. It’s crucial to establish social interactions, even if it’s virtual. This can include virtual “water coolers” where employees can chat casually, or even scheduled team-building sessions.
• Data security and regulation - Because remote work is done digitally, employers must be vigilant about securing, distributing and storing sensitive information amongst remote workers. Creating guidelines about information security and setting up a centralised platform can mitigate any potential data issues.

Why international remote employees are the most cost-effective option for growing your business

We’ve talked about the benefits of remote work, but it’s also important to stress the benefits of hiring international remote employees, in particular. It is financially beneficial to both employers and employees. 

Labour can be much more affordable in different countries, such as the Philippines, whilst allowing employers to hire quality employees. According to the Outsource Accelerator, the average monthly salary in the Philippines as of August 2020 is PHP 15,000, or USD 308. 

By finding employees that work in different time zones, you can have workers active throughout the hours of the day. Having an international remote workforce can also boost your company’s presence in the foreign market while providing you with a more international perspective.

Why you need an Employer of Record to manage remote workers

It can be challenging to handle the HR and administrative aspects of managing international remote employees. Payroll management can be a nightmare to deal with if you don’t have the proper systems and solutions in place. For example, contracting 50 freelancers will mean receiving 50 different invoices, manually computing their fees manually and conducting 50 separate transfers. This increases the risk of miscomputation, pay disputes and delays in transfer. This HR-centred workload also keeps you from business areas that need your attention. This isn’t even considering the minimum wages, tax requirements and labour standards that you need to familiarise yourself with, in order to provide proper compensation for employees. This is why it’s crucial for businesses to partner with an Employer of Record

International businesses must also be compliant when it comes to conducting business in other countries. In particular, investor-back companies cannot illegally hire employees, they must either build an entity in the country, lose operational control over traditional business process outsourcing centres or partner with an Employer of Record.  

There is no doubt that freelancing has numerous benefits, especially when you’re just starting out your business. But as you continue scaling and growing, it’s crucial to build a team of employees for the long-term development of your organisation. Partnering with an Employer of Record will ensure that you’re not only compliant with your international remote employees, but also that you have effective HR processes and a strong company culture in place.

Are you tired of managing freelancers by going it alone? Check out our services or book a call with us and we’ll make sure that you have a team of highly qualified and accountable employees at a fraction of the cost.