Employee vs freelancer - when to hire whom from the company’s perspective

• Administration
• Costs
• Employment benefits
• The hiring process
• Risk for the employer and security for the individual
• Permanency/duration
• Working hours
• Working remotely and from anywhere

• The performance
• Management and communication
• Company culture
• Loyalty
• Connections

Hard aspects

• Administration
• For the company hiring freelancers, it means different payment terms (paying for an invoice compared to creating a salary statement) and less bookkeeping in terms of not having to pay, report and document income taxes (including social taxes etc). Regarding the payment terms, usually freelancers get paid one, or even two, three, months, later or when the job is finished (this is stipulated in the freelancer’s contract and personally, I have experienced up to three months later, as demanded by the client) but employees could get their salary the same month (unionen.se). The freelancer has to administer and pay the income tax themselves and also pay self-employment tax and so on (ramseysolutions.com). Therefore, there usually is both less administration and payment at a later stage with freelancers compared to employees for the company.
• Costs
• Hiring freelancers compared to employees results in lower running costs. The total cost, which mainly depends on the employee’s salary and the freelancer’s hourly fee (and other peripheral costs) can be lower or higher in total for the company, but we can at least declare that it is a different kind of cost. Costs for salaries (as payroll expenses are overhead costs), benefits, computers and phones as well as other perks are allocated each month on a certain account in a hiring company, but as an expense when contracting freelancers (and not including benefits, phones and other perks, but sometimes computers due to security reasons). As such, freelancers result in lower running costs and headcount than employees. Whether or not the total cost for the company is higher or lower is more complex and varies from case to case, something I will not discuss further here. (paro.ai)
• Employment benefits
• The company does not have to pay or administer paid vacation, share or option programs, maternity leave, possible medical insurance, travel and retirement plans etc to freelancers (freelancers can choose to pay for these themselves instead and in their own company, if they want). Thus, freelancers receive no employment benefits from their client, meanwhile employees do that according to their contract and the company’s guidelines. (paro.ai)
• The hiring process
• From attracting talent to getting a freelancer onboard, in contrast to an employee, it goes faster and is less complex. For example, hiring companies may include several interviews spanning over several months and involving lots of different departments and people. There may be aptitude tests - both personal and competence wise as well. A freelancer can be ‘onboard’ by tomorrow ( no training or orientation needed) and the shortest interview process I have had was just a 10 minutes phone call. In conclusion, the hiring process is cheaper and easier with freelancers compared to employees that usually go through the traditional and extensive hiring process. (linkedin.com/pulse)
• Risk for the employer and security for the individual
• Risk for the employer often equals security for the individual. It can be applied in unforeseen situations such as when the employee fails to live up to expectations or when the general financial market situation and/or the company’s financial situation worsen unexpectedly. These situations may lead to the employer having to get rid of parts of the workforce to reduce costs (as the cost for the workforce usually is a big post, if not the biggest, in the balance sheet). When I wrote about “the hiring process” above, I was briefly touching on the subject already and the reason behind this is of course that getting ‘a bad hire’ or having to get rid of an employee (for whatever reason), often is a very costly undertaking for the company. That is one of the reasons why the hiring process is so complex and long - to try to reduce that risk. Meanwhile there is little to no risk with freelancers as they can be ‘gone as fast as they came’, kind of. Thus, there is a low risk for the employer with freelancers and higher risk with employees. (northwestern.edu)
• Permanency/duration
• In Sweden, most employees are ‘hired until further notice’. They probably have three months leave of notice meanwhile it is common with one month for freelancers, same-day or whatever the two parties agree on in the contract or verbally. In the freelancer’s contract it is always specified an end date (even with continuous resource consultants), but it is not in an employee’s contract. An employee may stay longer with the company than a freelancer. So the permanency usually is lower with freelancers than with employees. (iwoca.co.uk) However, in the current labor market, the employee churn rate (the rate at which existing employees leave and new ones are hired), is high and growing, with the younger generation driving that development. This will robably result in this argument being less important in the future, I would guess.
• Working hours
• Working hours can be specified in the contract with the freelancer, but in general freelancers work more freely and when they want. I mentioned the setup with “continuous resource consultants'' above, who often work the same hours as employees (often with the difference of paid, and agreed upon before-hand, overtime). However, project-based freelancers do not have to work the regular “9-5” normal working hours as employees often do. Employees might be subject to the pressure of “popping in at the office early” and optimizing their face time at the company, but freelancers focus more on the work at hand. Thus, I would state that freelancers have less strict working hours compared to employees. (usemultiplier.com)
• Working remotely and from anywhere
• Unless specified in the contract, freelancers work more, or fully, remotely in contrast to most employees. Some contracts state that the freelancer needs to be at the office a certain number of days a week and sometimes it is 100 % remote. However, there are also no geographical restrictions at all - freelancers can work from all over the world and companies can contract talent from all over the world. If I may say so, a much more efficient distribution of resources and talents, in my opinion. As such, freelancers usually work more remotely and from anywhere compared to employees. This could result in it being easier to attract and find competence. (betterprogramming.pub)

Soft aspects

• The performance
• Since freelancers “hang much more loose” and their contracts are always subject to renewal, many strive to build a reputation long-term and they are probably much more concerned and professional in their relationships with their clients than employees are with their employer. Freelancers usually are experienced, highly skilled specialists, the equivalent of which is difficult to acquire as employees. As such, probably resulting in a delivery of higher quality, but as I said in the beginning of this paragraph, it is quite difficult to measure and to state anything objective and universally true about this. In general, I would argue that a freelancer’s performance is of higher quality than that of an employee, but it varies from case to case.
• Management and communication
• Contracting freelancers results in less work for the manager and less time spent on, what I choose to call, 'less productive activities' in the company. There will be no salary talks, personal development programs, employee training, individual evaluations, company activities and such. Freelancers do not spend time at the company trying to climb the career ladder or engage in office politics, as is quite common among employees. When I spoke to an employed C-level friend of mine he estimated that 50 % of his time was spent on office politics, rather than producing or delivering anything tangible. I imagine that the higher up in the company, the more politics. Nevertheless, freelancers can accept more difficult, boring or time-sensitive tasks than employees and are usually up to speed and starting to deliver faster. They are more independent and used to lead their own work. Meanwhile it could be more difficult to get a hold of the freelancer (as he or she might have several assignments at the same time and other engagements, for example). The ongoing work of maintaining staff and hiring middle managers is much less needed when dealing with freelancers compared to employees. In all, I would argue that the need for managing and communicating is lower with a freelancer than with an employee.
• Company culture
• It could be more difficult to build 'a strong company culture' with freelancers than with employees. This is simply because freelancers do not demand or need a social exchange at their assignment in order to deliver. This is contrary to many employees who often see the social exchange at the workplace as fundamental when choosing their next employer, in my personal experience. Whether or not a strong company culture is something to spend money on, strive and actively work for is a strategy decision made by the company, in my opinion. All in all, freelancers do not need a strong company culture in order to deliver in contrast to some employees who are highly motivated by that. Furthermore, some companies claim that their employees are their most valuable asset, which could be more difficult to argue for the more freelancers one contracts.
• Loyalty
• I have already touched upon this subject several times in past paragraphs, but employees can be more loyal than freelancers to their employer. When I spoke about permanency/duration I mentioned that employees might stay longer with the company than freelancers do. Many companies want their employees to also be ambassadors for their products, services and their brand. I believe employees might be both more loyal, but also more disloyal, than freelancers are in this regard. If freelancers do not like or agree with the product, people and/or values of the company, he or she will probably silently deliver according to the contract anyway, meanwhile an employee might spread negative vibes both internally as well as externally and create a ‘toxic’ environment. I would define “loyalty” as being loyal to the company’s cause and standing behind it no matter what your own personal feelings or opinions are. In that sense I would argue that freelancers are more loyal, but I guess everyone has their own definition of what “loyalty” means to them. We can at least conclude that freelancers' attitude and loyalty differs from that of employees.
• Connections
• Freelancers usually have a network of talents and connections and can probably help out with any further resource needs the company might have for a fraction of the cost of putting out an ad, which employees usually are not as good at or inclined to do. Many freelancers live off their network and create new social connection points as a natural part of their everyday work. Therefore, freelancers might have more connections and are more inclined to use them than employees.