Contract Employees: Are There Benefits to Offering Benefits?
The recession means that more companies than ever before are relying on contract employees. Since their numbers can be scaled quickly and cleanly, many companies may stick with the safety and flexibility of this new staffing model, even as the economy begins to recover. With recovery comes increased competition, however, and forward-thinking hiring managers may start asking themselves if offering benefits could help attract more qualified contract talent. The short answer: it depends. Here are four common contractor scenarios and the resulting benefits considerations:
The employee is a 1099 independent contractor, and you are the client. Two words: no benefits. Offering benefits to 1099 employees can jeopardize their IRS independent contractor status. Most 1099ers are well aware of this, and either have their own insurance or expect to go without. To help your 1099 employees, you could offer more money to help offset their private benefit costs, and/or you can refer them to a 3rd-party benefits resource like Back of the House, which provides independent contractors with access to health and pension/401K plans.
The employee is a W-2 contractor from a staffing agency, and you are the client. If anyone offers benefits in this situation, it’s usually the staffing firm – though the costs for that are often built into their fee. Not all staffing agencies offer benefits, however, so if it is important to your corporate culture that all employees – regardless of classification – have access to benefits, make sure the agency you choose offers them to their contractors.
The employee is a W-2 contractor and you are the client, but there is no staffing agency. This situation is a sticky area with the IRS in regards to whether the contractor is an employee or independent, and is best avoided. Despite the risks, this type of contract is growing, and some organizations do offer access to (or even partially pay for) the same benefits that permanent employees receive, though usually in a scaled-down form. Most contract W-2 employees find their share to be too costly to be attractive – and be prepared for prospective employees to negotiate for higher wages instead if they don’t need the benefits (i.e., they have coverage through their spouse).
The employee is a W-2 contractor for a staffing agency, and you are the agency. This is the situation where offering benefits often makes the most sense. Providing your agency’s employees with health, dental, vision and/or 401K benefits can help attract better talent to offer your clients – depending on how much you contribute to the cost. Even more valuable may be things like sick days and PTO, as those are benefits that they cannot receive from any other source.
Many contract employees find that the benefits offered are too expensive, and prefer a straightforward pay increase instead. But for applicants who are desperate for health coverage, or want perks you can’t purchase elsewhere – like PTO – then offering benefits may give you a hiring edge.
For answers to all your questions about hiring contract employees, contact the staffing professionals at Triumph Services today!
