Is Your Business Growing? Think Twice Before Hiring Employees

Friday, April 17, 2015

Are you starting to feel the crunch of an expanding business? You might feel overworked, and stressed about the workload and your employees’ ability to manage the expansion. It’s time to hire additional staff. (Or, if you’re currently running solo, you’re ready for your first hire — congratulations!

Your first instinct may be to hire a full-time employee — not so fast. In this new world of business, your options are limitless. You can hire any type of worker that fits your business — and you may want to consider hiring an independent contractor instead of an employee. Here’s why:

Cost Savings

In many cases, it may seem like an independent contractor costs more than an employee. Contractors tend to command a higher hourly rate than a worker on payroll, but this isn’t the whole picture. The cost of an employee isn’t limited to an hourly rate — you have to factor in peripheral costs, including:

  • Benefits — health insurance, 401(k) matching, paid time off, annual bonus
  • Overhead — rent, utilities, office supplies, computer software
  • Administrative — training, payroll taxes, commercial insurance (such as workers' compensation and liability)

This is by no means a complete list of the costs associated with hiring an employee, but you can see how the additional considerations can add up in the long run.

Flexibility

In addition to the upfront cost difference, you can save money by hiring a contractor only for the work you need. When the volume of work slows down, you can pay your contractor for fewer hours — rather than paying for busy work or lower productivity when things slow down.

You can structure your work arrangement to reflect this — or, you can hire a contractor on a project basis. Each time a new project or block of work comes up, this person will be ready to jump in without the distraction of other day-to-day tasks than an employee might encounter.

Expertise

In most cases, an independent contractor or consultant has extensive experience in their field or specialization. They are running a business, just like you — so they act like a business owner instead of an employee. They self-educate to stay up to date on their industry, and they often work on a variety of projects so their perspective is always fresh. You don’t have to pay for their professional development, but you certainly benefit from it.

How to Make it Happen

If you decide to hire a contractor instead of a full-time employee, you’ll need to make a few adjustments. A few things to look out for:

Legal — Make sure you’re actually treating your contractor like a contractor, otherwise the IRS will start sniffing around. If you require a set schedule, put your worker through extensive training, or provide all the necessary tools and equipment for the job, your worker may legally be defined as an employee.

Taxes — When you hire an independent contractor, you’ll get to take a deduction on your tax return. Make sure you’re filling out all the proper forms, though. You’ll need to issue a 1099-MISC form to any worker who collects more than $600 in fees during the tax year. Send copies of the form to both your contractor and the IRS.

Contracts — Never enter a work arrangement without a contract, and make sure it’s clear that it’s an independent contracting arrangement. Specify the nature of the work agreement, and indicate that no offer of employment is being extended. In addition, include a detailed breakdown of deliverables and timelines (where applicable) in your agreement.

Need help making some legal decisions as you expand your business? Get in touch with us.

 


Back to Koontz & Associates, PL Blog

Schedule a Consultation