As your business demonstrates growth, you’ll likely be starting to think about growing your team, too.
When you take something and make more of it, or expand the services you’re currently offering customers, this naturally comes with a need for a bigger workforce to handle demand. But should you hire a full-time employee or an independent contractor?
To make an informed decision, you’ll need to review the information given below:
Who is classed as an employee and who is classed as an independent contractor?
According to the IRS, if someone is performing a service for you in which you control what needs to be done and in what way, then they are classed as an employee. It also means that you are required to supply them with the tools and equipment necessary to fulfil their role, and that they receive a specific wage or salary and mandatory benefits. Depending on the size of your company, health benefits and retirement plans may also come into the equation.
With the freedom to work at their own pace, however, independent contractors create their own hours, work at their own locations and have all their own tools and equipment. In many instances, independent contractors can be beneficial to a company, especially when you consider how much you can reduce the cost and burden for your business by hiring them instead of an employee.
The importance of correct categorization
In terms of the IRS, the consequences of failing to correctly categorize an employee or an independent contractor, can be costly, and it’s recommended to issue all independent contractors with a vendor packet before their work for you commences. Containing a contractor agreement, all the necessary tax forms (such as a W-9) and a questionnaire requesting any other contact and emergency information, this can help you avoid any potential complications when hiring.
With employees, it’s essential that you comply with all necessary employee and payroll regulations set by Federal and State Governments; report all payroll records accordingly; pay employer taxes and employee withholdings on time and file annual forms such as W-2.
So, which is best for you – employee or independent contractor?
If you’re a business owner, you’ll undoubtedly achieve a higher level of involvement and commitment with an employee, than you would with a contractor, and in terms of growing your business, this can be vital.
That said, if you don’t want to be saddled with IRS withholding, or funding health and retirement, independent contractors could give you the affordable flexibility that you need.
To discuss your options in more detail and really get to grips with the pros and cons of taking on employees or independent contractors, you can discuss your options with a payroll expert.
Staffing and payroll compliance are huge areas of concern for growing companies, and if you haven’t yet sought professional help with this, now is as good a time as any to prevent any costly issues from occurring.