Depending on your needs, you may prefer to hire employees or independent contractors. There are benefits and drawbacks to both…
Once a new business gets off the ground, it may be time to start thinking of hiring one or more people to help you. Depending on your need and the type of work you do, you may prefer full or part-time employees, or you may prefer to hire independent contractors. There are benefits and drawbacks to both.
Independent Contractors
If your need for assistance is periodic, seasonal, or unpredictable, one or more independent contractors may be able to handle the job. Independent contractors are particularly suited for virtual work, such as copywriting, proofreading, research, and marketing. An independent contractor may be helpful if you are introducing a new product or service and need someone to make calls to potential customers.
The benefit of hiring independent contractors is that you only pay for the task or project, and when the project is complete, you do not have to continue paying a weekly salary. The disadvantage is that the contractor may not be available when your next project is ready. You may have to hire a new contractor or wait until your preferred contractor is available to do the job.
Employees
You may hire an employee as a part-time, full-time, or seasonal worker. The main difference between an independent contractor and an employee is that you may exercise more control over an employee’s schedule. An employee is obligated to work during the hours you specify, and you will have more supervisory control over the work product. You may specify that an employee works only on your projects during their period of employment, while an independent contractor is free to take on other clients.
Paying Workers
Independent contractors may be paid by the job or by the hour. A worker who is paid a regular amount per week is usually considered an employee. You are not required to withhold taxes from the pay of an independent contractor, but you must follow IRS regulations for withholding for all employees. At the end of the tax year, you will prepare a Form 1099 for an independent contractor and a W-2 for an employee.
Insurance
As an employer, you may be required to carry worker’s compensation insurance for your employees. Laws vary for each state, but most states require worker’s compensation coverage for any business that employs more than the stated minimum number of employees (in some states, the minimum number is two employees; in others, it may be three or four). Employees, for worker’s compensation purposes, include full-time and part-time employees. If a worker is injured while working for you, worker’s compensation insurance will cover the cost of their medical bills and lost wages, eliminating in most cases the worker’s right to sue you as the employer. More information on worker’s compensation insurance may be found on many law firms’ websites, such as theobrienfirm.com, or any local worker’s compensation firm. Your state worker’s compensation department will also provide basic information on their website. Small business owners may ask why anyone would choose to pay worker’s compensation insurance premiums when they could save money by hiring nothing but independent contractors. The answer is simple-if there is a better than average chance that a worker might be injured while on the job, worker’s compensation insurance will cost much less in the long run than a personal injury lawsuit.
Liability
Since independent contractors are considered the owners of their own businesses, you will generally not be held responsible for injuries they may cause to others while working for you. For example, if an employee gets in an automobile accident while running an errand for you, he is covered by worker’s compensation insurance. An independent contractor running an errand should have his own insurance, and you would not be responsible for any injuries he causes. Be aware, though, that in some circumstances, a contractor may be considered an employee, possibly exposing you to liability. A local attorney can advise you about your rights and responsibilities when employees are involved in accidents while on the job. O’Brien and Ford, P.C. is a top-rated personal injury law firm in Syracuse, NY, for example, and can provide information about liability issues in New York. In Charlotte NC – Campbell Law and others can help with questions about worker’s compensation and employer liability.
The Bottom Line
Many small business owners start out using independent contractors, and later hire those contractors, or others, as full-time or part-time employees as the business grows and their need becomes greater. In general, using independent contractors involves less paperwork, and works well for businesses that are starting out.
