Hmmm… Hire an employee? Or, hire a contractor?

As a business owner, this is a question that may come up for you on occasion. Here is a helpful ‘pros and cons’ list I’ve drawn up to help you decide what’s best for your business needs.

PROS

  • Even though you may have to pay a contractor more per hour, you actually save a good amount of money in the long run.
  • When you hire an employee, there are several added expenses to consider; benefits, office space and equipment, Social Security and Medicaid taxes (7.65% of employees compensation)
  • These payments can increase payroll costs by 20% – 30% or more.
  • Flexibility; greater leeway in hiring and firing (great if you have fluctuating workloads)
  • No trauma, added expense, or legal trouble when you no longer need personnel
  • Greater efficiency; most independent contractors (IC) are experts in their field, productivity is immediate (no training involved)
  • Reduced exposure to lawsuits; employees have a wide array of rights under state and federal law, an IC is an independent business person and not protected under any of these laws and/or rights.
  • An IC cannot sue you for wrongful termination (but this may be dependent on your written agreement/contract with your IC).

CONS

  •  You have less control over your workers; no micromanaging or close supervision (do you really need to do this?) If you interfere too much in an IC’s work, it may look to the IRS like your IC is an actual employee – not good. The IRS takes ‘classification’ very seriously.
  • Workers may come and go although many IC’s prefer long term relationships with their clients and are available to them as needed.
  • Your right to terminate an IC’s services is limited by the terms or your written agreement.
  • If your IC works ONSITE, you may be liable for any injuries suffered on the job. An IC has every right to sue you for damages.
  • You may need a ‘non-disclosure’ agreement drawn up if there is a question of copyrighted works. Otherwise everything the IC does, they have a legal right to ownership.
  • Risk of government audits; The IRS (as mentioned above) is very serious about classification of workers as actual employees or independent contractors. Any number of state and federal agencies may audit your business if they suspect you have mis-classified your workers in any way.
Resource: http://bit.ly/2gT4978 ( www.forbes.com )

So, what makes the most business sense for you? Whatever you decide, just make sure you’re following all the rules. If you think there are more benefits in hiring an IC, here are a few things you may want to keep in mind:

  1. Have a little faith that your IC is doing exactly what you want them to do.
  2. If you have a tendency to micromanage – don’t.
  3. You need to trust your people (until they prove without a doubt they can’t be trusted)
  4. Most important – have a simple, straight forward ‘Work For Hire’ agreement in place, spelling out the scope of work, termination conditions, and anything else that matters to all parties involved.