So you’ve set up your business, compared your product to the market, found your breakeven point and your business is doing well. You even have enough work that you need to hire some help. How do you go about that? In today’s business climate there are typically two routes to take. You can either go with the standard employee or with a subcontractor. Even though the actual work for hire may be the same, there are some significant factors that need to be considered in order to avoid potential aggravations and financial costs.
Hiring an Employee
You may want to bring them on as an employee if:
- You, as the employer, are setting their hours
- They work solely for you
- They present themselves as a representative of your business (perhaps carry your business card)
In this case, as an employer you will be responsible for payroll taxes and perhaps workers comp insurance, health insurance or other benefits.
Hiring a Subcontractor
You may want to just subcontract the work out to an individual if:
- You are okay with loss of control of how and when the work is done.
- You only want them for one job or on a per-piece-of-work basis (this may involve fluctuating payments, unlike a steady salary)
- They have other clients they do similar work for
Here’s the tricky part. The Department of Labor has been known to have a little beef with some subcontractor arrangements. They may contest the validity of the relationship. In other words, if you are bringing on a sub-contractor to get out of the payroll tax and insurance costs, you better be sure that the subcontractor can’t be considered in “essence” acting as an employee. For example, if the “sub” has been doing the same work solely for you over a period of time or has no other clients, then they could be deemed to be an employee. In that case, you could find yourself owing significant money in back taxes and penalties.
Making a Decision
Sometimes people make the choice between a subcontractor and an employee based on perceived liability if faulty work should be performed. While that is a consideration, it’s worth nothing that often there’s little difference when the work is performed on behalf of your company. It’s most important to evaluate WHAT work they will do, WHO will decide how and when that work is done and HOW their pay is determined. Employee vs Sub: Consider WHAT work they do, WHO decides how it’s done and HOW they get paid.CLICK TO TWEET
These are just a few of the things to consider when trying to decide between a traditional employee or subcontractor.It may seem like an easy decision but it is important to take the time to weigh your options carefully.