Start by evaluating what your customers need from you. Once you have a good idea of what’s going to be required of you, you can then determine if you have the right resources available. Before you hire additional staff, there are a few things to consider. Is this a short-term or long-term need? Can you meet customers’ needs by having current staff members work longer hours? What does your budget allow for?
Once the decision has been made to hire additional workers, it’s time to decide if they will be contractors or employees. There are pros and cons to both, as well as tax implications that need to be considered. If your customers need services that your company doesn’t typically provide, hiring a contractor that specializes in that area could enhance your service offering without adding too much of an additional cost. However, there may be situations where it’s more cost-effective and efficient for your customers to hire the third party directly.
Outlined below are a few of the differences between employees and contractors you should consider before deciding.
- Operate under their own business name
- Advertise their business’ services
- Invoice for work completed
- May work for more than one client at a time
- Provide own business tools and resources
- Set own hours
- Keep business records
- Have reduced labor costs and liability
- Provide flexibility in hiring and firing
- Usually have a pre-determined work length
- Must complete a W-9
- Must receive a 1099-MISC for any payment in excess of $600
- Perform work assigned by others
- Work for only one employer
- Must be provided employee benefits
- Require employers withhold state, federal income, Social Security, Medicare and unemployment taxes
- Have no set employment end date
- Must receive a W-2 form
Classifying someone as a contractor when they qualify as an employee can have serious tax implications. You’ll be liable for paying employment taxes and face penalties as well. Therefore, it’s important that their work conditions and workload match their classification.
We are here to help you get through this maze of tax laws!
Adapted from 2/6/15 CPA Practice Advisor author Taija Jenkins