Freelancers vs Employees: Which is best for your company?

The choice between hiring freelancers and full-time employees is crucial for businesses aiming to optimize their performance and financial efficiency. In this article, we explore the distinctions between these two types of workers, outlining the level of flexibility, cost implications, and operational impacts of each. By examining the key advantages and disadvantages, we aim to help you determine the most effective workforce structure for your company’s specific needs and goals.

What is a freelancer?

The terms “freelancer” and “freelance employee” are not regulated in Switzerland and are therefore not officially defined in Swiss law. In general, a “freelancer” can be considered as any independent professional who works on a self-employed basis rather than being permanently employed by a single company. Instead of being bound to a single employer, freelancers can offer their services to various clients and typically work on multiple projects at a time, charging either by the hour, day, or project. They are responsible for managing their own schedules, taxes, and business operations.

One of the key characteristics of freelancing is the flexibility it offers. Freelancers can choose which projects they want to take on, set their own hours, and decide their work location. This flexibility offers many advantages for both the freelancer and their clients, as we will explore in this article. However, along with the benefits of freelancing, there are also additional risks and responsibilities, such as variable income, lack of employment benefits (like social security contributions, subsidized work equipment, etc.), and the need to handle one’s own contractual and tax obligations.

The rise in the freelance working model

Recent years have seen a major shift towards a more flexible, project-based work model in Switzerland and abroad. This has been driven by several factors, including technological advancements, changing worker preferences, and the global nature of modern businesses. Platforms that facilitate remote work and digital collaboration have made it easier for freelancers to connect with potential employers around the world. Consequently, freelancers now comprise a significant portion of the workforce in sectors such as IT, creative industries, consulting, and more. This trend was greatly accelerated by the COVID-19 pandemic, which demonstrated the viability of remote working, making freelance options more attractive to both workers and employers.

Freelancers versus employees for your company?

The decision to employ freelancers over full-time employees, and to what extent, can significantly impact your company’s flexibility, operational dynamics, performance, and financial efficiency. Let’s explore the advantages and disadvantages of each to determine which employment model aligns best with your business goals:

Advantages and disadvantages of freelancers

Advantages:

• Flexibility and scalability: The flexibility of freelance contractors allow businesses to scale their workforce up or down depending on project demands without the long-term commitment associated with hiring employees. For example, you may have a particular short-term project that requires a unique skillset. Instead of hiring a full-time employee with the skills you need, you can contract a professional freelancer to complete these irregular tasks as and when required.   
• Access to deep expertise: Freelancers often possess highly specialized skills that may be too costly to maintain in-house.
• Reduced employment costs: Utilizing freelancers can lead to significant savings as businesses do not need to pay for benefits, additional office space, or equipment. While a freelancer’s rate may appear high at first glance, remember that you only pay for the work they actually do and nothing else.
• Lower recruiting costs: In addition to potential cost savings in the form of salary, the cost of recruitment itself is much lower when employing freelancers. Finding freelancers is easy and cost-effective, whereas the recruiting process for hiring specialist long-term employees can take months and cost a great deal in HR resources or in paying external recruiters.
• Independence: Freelancers are highly independent and don’t need to be “micromanaged” or “spoon-fed”. An experienced freelancer will have their own established systems in place and be comfortable in getting down to work without you needing to waste your company’s resources in managing their time or training them. Furthermore, you are not responsible for paying a freelancer during downtimes such as illness, pregnancy, vacation etc. To sum it up, freelancers are far more self-sufficient and therefore pose less of a burden and financial risk on your company.

Disadvantages:

• Less control: While freelancers’ independent style of working can often benefit your company, it can sometimes lead to discrepancies in work style and a lack of control over how and when work is completed.
• Availability issues: Since freelancers may have multiple clients, their availability can vary, which might not align with your company’s immediate needs. You can not rely on a freelancer to consistently produce work when you need it the way you can with a permanent employee who is loyal to your company alone.
• Lack of organizational knowledge: Freelancers are not always fully integrated into the company’s culture and may not have a deep understanding of the company beyond the specifics of their assignment.
• Fees can be high: While it often ends up being more cost-effective to employ freelancers, some specialists may charge very high fees that can be a financial burden for your business.
• Risk of false self-employment: When hiring freelancers, caution is necessary to ensure that there is no misclassified self-employment and that the laws on temporary employment in Switzerland are not violated. Misclassified self-employment occurs when a person works as a freelancer or independent contractor, but their working relationship more closely resembles that of an employee.
• In Swiss law, misclassified self-employment is not precisely defined, but there are criteria to determine whether someone is self-employed or misclassified as such. Key factors include economic dependence on the employer, especially if more than 50% of income comes from a single employer, and the lack of independence from directives.
• Employing workers under the status of misclassified self-employment can lead to severe legal and financial consequences for companies, including fines, back payments of wages and social security contributions, and possible legal action for violations of labor and social security laws.

Advantages and disadvantages of employees

Advantages:

• Commitment and loyalty: Employees are generally more invested in the company’s success and can therefore be more loyal and committed than freelancers. They are usually more aligned with the corporate vision of the company and derive a sense of identity and belonging from it. This can lead to long-term collaborations and more sustainable employment relationships.
• Team dynamics: Employees are more likely to build strong internal relationships, which can enhance collaboration and foster a cohesive and synergistic corporate culture.
• Consistent availability: Full-time employees are readily available to handle ongoing tasks and unexpected needs that arise during regular business operations as they are only committed to their single employer.
• Increased efficiency: As a permanent employee becomes accustomed to the structure and systems of the company they work for; regular tasks can be handled with greater efficiency and ease.
• More cost-effective in some cases: It’s not possible to say definitively whether freelancers or employees are the more financially efficient option. In some cases where permanent employment leads to long-term collaborations and greater continuity, the employee ends up being the more cost-effective alternative. 

Disadvantages:

• Higher costs: In many cases, the total cost of hiring employees is higher than that of freelancers. These costs extend beyond gross salary to include employment benefits, taxes, equipment and office space, training, recruitment, compliance costs and more.
• Reduced flexibility: Scaling an employee-based workforce can be more challenging and costly, particularly in response to fluctuating workloads and output.
• Regulatory and legal responsibilities: Employers face numerous legal obligations related to employment law, which can vary significantly from one canton to another.
• Dispassion and narrow views: While long-term employment relationships can often bear the best fruit, there is also a potential drawback. Employees who have been working in the same position for years or potentially decades may become dispassionate and dull in their work, lacking the fresh thinking, wider perspective and enthusiasm that freelancers may bring to the table.

The cost argument: which is actually more cost-effective?

One of the primary considerations when it comes to deciding between using freelancers or hiring permanent employees is that of financial efficiency. And so, the question often boils down to: “which is more cost-effective for my business”. In short, the answer to this question is: it depends on the circumstances. We have already touched on the various cost considerations and variations between freelancers and employees in previous sections, but let’s take a closer look at this crucial point:

Hiring a freelancer: you pay for what you get

Employers are often put off by the seemingly high fees charged by many freelancers. While this may seem a logical concern at first glance, it’s important to examine these costs more closely.

On paper, freelancers charge more per hour than their permanent employee counterparts. However, employers should consider the fact that freelancers are only paid for actual hours worked or output produced. If the freelancer is sick or takes a vacation, the employer doesn’t pay them for it. By hiring freelancers, employers also bypass costs associated with permanent employees such as health benefits, pension contributions, and other employment-related benefits. Most importantly, if the freelancer spends half their day browsing social media instead of working, it’s their problem because they don’t get paid for it.

The true cost of permanent employment

Compare this to permanent employees with a so-called 8-hour work-day, all of which is paid for irrespective of how they use (or abuse) that time. There have been multiple studies that suggest that actual productive work time in an 8-hour workday is significantly less than the time spent at work, with a considerable amount of time being wasted on non-work-related activities and inefficiencies. Some of the most well-known of these include:

• A VoucherCloud study which found that the average office worker is only productive for less than 3 hours out of an 8-hour workday.
• An Atlassian study which found that the average employee wastes 31 hours per month in unproductive meetings.
• A Udemy report highlighting that 70% of workers admitted they feel distracted when they’re at work.
• Research conducted by Basex which concluded that interruptions and information overload eat up close to 30% of an employee’s working day.

All this serves to illustrate that the actual hourly rate earned by permanent employees may be much higher than first appearances suggest. Not to mention that an employee is entitled to at least four weeks of paid vacation per year. Now add in all the additional costs such as social security contributions and other employment benefits, the cost of office space and equipment, higher recruitment costs, ongoing training, and so on. It is not difficult to see that the true cost of permanent employment can be much higher than anticipated.

The verdict: which is the cheaper option?

The above points show that it is not as straightforward as simply comparing hourly rates between freelancers and permanent employees to know which is the more cost-effective. In many situations, freelancers may be the more financially efficient choice even though they appear to have a higher hourly rate, especially when it comes to short-term projects or when needing specialized skills that are not required on an ongoing basis.

However, freelancers are not always the more affordable choice, and there are also circumstances where a permanent employee may be both better suited to the job at hand and more cost-effective. This is especially true for roles that are central to your company’s operations, where employees can develop a deeper understanding of your business, contribute to a stable company culture, and drive continuous improvements and innovations, which can lead to greater overall business profitability and efficiency.

Ultimately, determining which is more cost-effective depends heavily on the specific needs and circumstances of your business, and the nature of the work which the employee or freelancer is needed for.

Which is best for your business: freelancers or employees?

While it can’t be said that either freelancers or employees are the better choice in all circumstances, there are a few factors to consider when determining which best suits your company’s needs:

1. Duration of the work: for short-term projects of a few weeks or months, freelancers are often the better option as they offer greater flexibility, require less training, and do not entail a long-term commitment.
2. Variability in workload: if your company is susceptible to major variations in workload due to fluctuating sales and operations, seasonality, and economic impacts, freelancers can greatly reduce your risk and offer the flexibility and scalability you need to react quickly to these shifts. If your output and workload is more steady, permanent employees may be a better fit for your business.
3. Physical presence: If the work requires on-site physical presence, such as a receptionist, office manager, in-store sales staff, etc., you will most likely need a permanent employee to fulfil the roll. However, if the work can be carried out remotely and at any time of the day, freelancers are well-suited to the position.

To sum it up, if your work demands flexibility, specialized skills for short-term projects, or you operate in an industry with high variability in workload, freelancers can offer the cost-effectiveness and adaptability you need. Conversely, if your business requires consistency, long-term commitment, and deep institutional knowledge, the investment in permanent employees could provide a stronger return on investment. For most companies, hiring the right combination of permanent employees and freelancers can provide the balance they need.