You’ve been working on your business hard and with great success. So hard in fact that you end up working most nights. Your spouse and kids tell you that they miss you and would like to spend more time with you. The next natural step would be to get some help, right? Before you hang up that “help wanted” sign or put an ad on Craigslist, here is something to think about:
What kind of help are you looking for—an employee or an independent contractor?
Independent contractors tend to have their own business and advertise their services. They usually have their own business cards and insurance. They assume the risk for making a profit on a project. They set their own schedule and can demand or negotiate a price for the project. They can offer their services to others and are free to refuse a particular job. In addition, they can decide to hire help with a project. An independent contractor can decide when, where and how to complete a project so long as the end result complies with any requirements set by the person who hires them.
Employees on the other hand usually have their hours and dates of work assigned by their employer. They have to ask for a day off or vacation time. They usually work exclusively for one employer although they can work for more than one, just not on the same days and times. Their rate of pay is set by the employer who may also give them certain benefits. They may be required to attend certain meetings or trainings set by the employer. The employee usually works in a facility owned by the employer and uses tools and supplies provided by the employer plus the employer directly supervises an employee.
Misclassification can cost you.
Sometimes employers misclassify employees as independent contractors to get out of paying unemployment insurance, workers comp, Social Security, tax withholding and temporary disability—all costs of having an employee. This can be problematic as they are still liable for these things if it is discovered. Another reason an employer might misclassify an employee as an independent contractor is that if they earn less than $600, no 1099 needs to be issued. This can be tempting for a temporary employee.
Good advice can keep you on the path to success.
Think about the type of work you want to delegate. Would you need the person to work with you in your location, like in a bakery as a cashier, or would they be free to get the work done elsewhere? Are you looking for someone to do part-time administrative work or a potential partner who takes an interest in the growth of the business? How to classify an employee can sometimes get even trickier nowadays with so many people freelancing or working remotely.
Prior to hiring, talk to your accountant about the true expense of hiring someone (hint – it’s not just the hourly rate) and what would work best for you in your situation. Every business should have an accountant not just at tax time but for very important decisions like your first hire. Contrary to popular belief, attorneys don’t just want you to get yourself in trouble so that we can help you out for a fee; we want you to ask us questions about how to do it right the first time!