Misclassifying employees as contractors can carry penalties; follow local classification rules.
Compare like with like
An employee's cost is the salary plus employer social security, mandatory benefits and paid leave. A contractor's rate usually has to cover their own taxes, social contributions, equipment, holidays and gaps between projects, so a contractor charging 1.3 to 1.5 times the equivalent employee hourly wage is common.
Classification risk
Whether someone is a contractor depends on how the work is done, not on the contract title. The US IRS uses a common-law control test and California applies the stricter ABC test; the UK has the IR35 rules, and most EU countries have their own tests. Misclassification can lead to back taxes, contributions and penalties.
Frequently asked questions
Are contractors cheaper?
Not always: compare total cost and legal risk.
Is a contractor always cheaper?
Not for long-term full-time work, once the contractor's higher rate and the classification risk are included.
What is an employer of record?
A company that legally employs the person in their country for you, handling payroll and compliance for a monthly fee.