3 Things to Consider before Hiring or Sub-contracting the Help you Need
Your business has grown and you’ve realized that you need some help. While this is a big and exciting measure of how you’re growing, who you hire and how you hire are decisions that should be carefully deliberated.
As with all serious business decisions, there are considerations to take into account before making – and executing – them. So, before you begin asking interview questions, you’ll need to ask yourself a few questions.
First of all, do you know the legal and practical distinctions between an employee and an independent contractor? I talk with business owners all the time who aren’t clear on the distinctions and set themselves up for future trouble with the IRS.
One general difference is that an employee is put on your payroll – he or she will have to pay their federal and state taxes, social security and any premiums for benefits you’ll offer through their paychecks that you (or your bookkeeper or accountant) process.
Independent Contractors are accounts payable. You pay their invoices in full and they are responsible for all of their taxes and benefits.
But there’s more to deciding who to hire and if he or she should be brought in as an employee or an independent contractor. And both options have pros and cons. But, by giving careful thought to the 3 primary considerations discussed below, you’ll be better equipped to determine which is best for you and your business.
Establishing the Relationship
One of the biggest considerations in this decision is simply, how do the parties view the relationship?
For example, I’m an independent contractor. I market myself as such and my clients know that I am working with multiple businesses. I provide the contracts that outline the scope of work and the specific duties that I will perform.
I work offsite, not at their location, and I’m only responsible for the work outlined in my Scope of Work proposal. I am not expected to wait on their customers or answer their phones.
It’s very clear in this instance that I’m an independent contractor, not an employee. I don’t expect any of the additional benefits provided to employees like insurance or retirement plans. And my client doesn’t expect me to perform any tasks other than managing their books and finances. There needs to be some common ground in how both parties view the relationship. You’ll need to be sure that you’re on the same page. Hiring an employee who approaches the job as if he or she is an independent contractor, or vice versa, will lead to huge issues down the road.
Control
Employees tend to have a lot less control over their work than an independent contractor. The employer provides any equipment, materials, and supplies that are needed to complete the job or perform the work duties, dictates when the employee (s) will work, and mandates how that work is to be completed or delivered.
Independent contractors have a specific job to do but have the freedom to determine when and how that work gets done (within the parameters of the contract or proposal that both parties agreed to).
When hiring help, one of the first things business owners have to determine is what tasks or responsibilities they need help with and how the new hire will be expected to accomplish those tasks.
The line of control has blurred a bit with the rise of remote workers, but the IRS guidelines remain the same:
An independent contractor will likely already have expertise in performing the specific tasks or delivering the particular service you need from them and they likely have their own processes in place for doing so.
An employee may have that same expertise and experience but will be following your processes and your standard instructions in order to accomplish those same tasks.
Pay
The final factor you need to consider is pay. How have you determined how much and how you will be paying for the help you need?
If the person you’re hiring has given you a quote or proposal that outlines the structure and method of their payment, you’ve hired an independent contractor. Generally, they won’t expect reimbursement for any expenses they incur since those costs should be included in the cost that they quoted you.
An employee may certainly negotiate their pay structure with you, but how they are paid is up to you (within the law, of course). They may also expect you to reimburse them for purchases or expenses that they incur in their day-to-day duties.
Bottom Line
There is no single factor that determines whether your new hire is an employee or an independent contractor. Rather, it’s a combination of all these considerations together that leads to the answer that’s best for you.
There can be a lot of benefits to hiring an independent contractor, but it still might not be the right solution for you. The decision is completely based on what your business needs, the level, type, and variety of “production” (work tasks) you need from the person, and the extent to which you need to manage, direct or oversee their work and how they perform it.