Small business owners tend to be a jack of all trades. Money is tight after all, so why spend on the extra help when you can do it yourself? The answer is that time is your most precious commodity. You only have 24 hours in a day and that time should be spent working on the value you deliver to customers. To succeed in business you must become a leading expert in your industry and that requires hiring your weaknesses. If you aren’t ready for employees, then retaining an independent contractor could be a good option. In this article, I discuss how to hire an independent contractor.
Employees v. Independent Contractors
Not all workers are the same (beyond our common humanity of course). It is crucial to understand the difference between an employee and independent contractor before hiring a new worker.
Taxes. In simple terms, employers generally withhold federal income taxes, payroll taxes, and unemployment insurance taxes on employee wages. Independent contractors generally pay these taxes without employer withholdings. If an employer mischaracterizes an employee as an independent contractor, then they may be responsible for that employee’s tax liability along with any associated penalties.
- Behavioral Control: This form of control is the “when, where, and how” the worker performs their services. Examples of behavioral control include: When are they working? Where are they working? What tools or equipment are they using? What work must be done? Is there specific training required?
- Financial Control: This form of control determines the business aspects of the worker’s job. Examples of financial control include: Are expenses reimbursed? Is the worker making a personal investment in the services? How is the worker paid? Are side hustles allowed? Can the worker make a profit or loss?
- Work Relationship: These facts define the nature of the relationship between the employer and worker. Examples of work relationship characteristics include: Is the work relationship permanent or project-based? Are the worker’s services fundamental business functions? Is the worker eligible for fringe benefits?