projects, consider a temporary employee. A worker sent to you by an agency is employed by that agency, and therefore payroll, taxes and insurance are covered by the agency. Expect to pay more than if you hired the workers directly. You’re paying for convenience.
When your peak period slows back to normal, you simply end the employee lease—without damaging morale as you would laying off a permanent employee. Some agencies specialize in fields such as office workers, accountants, graphic designers or tech workers. These trained temporary employees can often start immediately, without the learning curve that can come with a new employee.
What’s right for you? Employees or independent contractors
Let’s say you run a restaurant. You must have waiters and cooks who come in on certain days, at certain times, and perform certain tasks (such as waiting on tables). These workers are employees; there’s almost no way that waiters and cooks could be legally classified as independent contractors.
But in other cases, you can make the decision whether to hire an employee or engage an independent contractor instead.
For instance, let’s also say you need a marketing manager for your restaurant. You want your marketing manager to run your website, send out press releases, and call prospects to hold events at your restaurant. Should you hire a part-time marketing specialist or should you engage a marketing consultant who’ll be an independent contractor?
If you hired an employee, you could have your marketing director come in to the restaurant’s office at times set by you and work on your computer. You’d be certain that they were actually doing the work they were hired to do. If you didn’t like the way they were doing something, you could correct them and show them how you’d like it done. Under the law, that marketing director must be classified as an employee. You’d have the extra expenses of payroll taxes and workspace and equipment. But your marketing director would be part of your team; you’d know whether or not she was doing her job; you could call on her for other tasks.
Instead, if you hired a marketing consultant to perform those tasks, and that consultant worked from her own home, at times she chose, using her own computer—and especially if she had other clients—she would certainly be considered an independent contractor. You wouldn’t have to pay her payroll taxes or provide any company benefits. She’d use her own equipment, and that would save you money too. On the other hand, her hourly fee might be higher—perhaps much higher—than if she were your employee. And—importantly—would you be as confident that she was making as many calls or sending out as many press releases as if she were working under your direction? You have more control over employees than you do independent contractors.
Most businesses use independent contractors at some point—especially to do specific projects or tasks. It’s likely you’ll use an independent contractor to help you with your legal, accounting, technology, or marketing needs. In fact, it’s possible to build quite a “virtual” company using many independent contractors—even legally. But some tasks are not appropriate—or legal—for independent contractors.
It’s likely that independent contractors will have less of a long-term (as well as day-to-day) commitment to you. They may choose to stop working for you. While the money-saving upside seems compelling, not all workers qualify as independent contractors and it’s not always the best choice for you.
Advantages of having employees:
1. You have control. Employees work for you; you can tell them when and where you want them to work and exactly how you want them to get the job done. You can provide on-the-job training so they do the work exactly how you want.
2. You—or a member of your staff—can see and supervise employees. That way, you are certain that they are performing the work in the time you are paying them for. You can see how productive each employee is.
3. Employees often feel a deep sense of attachment to their jobs and employers, feeling part of a team. They are more likely to have a sense of commitment to your company.
4. Employees are likely to want to stay long term, adding consistency and legacy knowledge to your team.
5. If an employee creates anything that might be considered intellectual property—whether it’s your company logo, a design, software, website content, or the like—while working on the job, you automatically own the rights to that work.
6. Employees are often far cheaper on an hourly basis.
Advantages of using independent contractors:
1. None of the payroll taxes and employee-related laws apply to independent contractors, so you won’t pay Social Security and Medicare taxes or workers compensation and unemployment insurance, and you don’t have to worry about overtime pay or complying with other labor laws. Paperwork is easier, too.
2. You do not provide benefits—such as health care—to independent contractors. Once again, this can save you a considerable amount of money.
3. Independent contractors tend to bring special skills and experience to the job you’ve hired them for. They generally don’t need training.
4. Independent contractors provide their own supplies and workspace, lowering your overhead.
5. Most independent contractors are motivated to do a good job, since they want to keep you as a client and get referrals from you. Since you typically hire them on a project basis, you don’t have to worry about finding continuous work for them or laying them off if business is slow.
Independent Contractor Agreements
When working with an independent contractor, clarify your project’s scope, goals and expectations by drawing up an Independent Contractor Agreement. You can use this agreement to demonstrate the intended contractor relationship to the IRS, if needed. Include information such as the services to be rendered, the manner of billing, how much and when you will pay your contractor, location of services, the contractor’s tax identification number, and any other information that will help clarify your expectations and your contractor’s role. If they are creating anything for you—such as designs, software, logos—make sure you have a “work-for-hire” clause so that you retain ownership of their work product. An online search of independent contractor agreements will turn up many samples upon which you can build yours.
Exempt vs. Non-Exempt Employees
Once you’ve classified a worker as an employee, the next most important thing you have to figure out is whether—in the eyes of the law—they are exempt or non-exempt from the Fair Labor and Standards Act (FLSA).
The FLSA of 1938 established a national minimum wage, guaranteed time and a half overtime pay for certain jobs, set standards for the employment of minors and prohibited oppressive child labor, and established guidelines for employer recordkeeping. These employment standards apply to employees in the private sector and in Federal, State and local governments.
