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Employing Independent Contractors at Your Small Business

“There’s too much work. I have to hire someone else!” When you first start a small business, that’s a problem you dream of having. But when the time finally comes, you realize … it’s still a problem. Among other things, it forces you to make a choice with more ramifications than you might think: Do you hire a new employee, or do you hire an independent contractor?

The first question that likely comes to mind is: What’s the difference? It involves several factors, but in short, you’ll provide a regular paycheck, set hours and supply necessary materials to an employee, whereas an independent contractor typically takes on more spot work, provides their own supplies and is paid on more of a job-by-job basis.

While many small business owners might think their first (or next) hire has to fall under the traditional employee umbrella, that’s not the case. Independent contractors offer a unique set of benefits that might be better suited for your particular situation. Of course, they also come with a unique set of challenges.

The following are some of the perks and the pitfalls off this type of worker.

Pros and Cons of Employing Independent Contractors

Pro – They’re Cheap(er): When you hire an employee, full-time or even part-time, you typically have to pay them much more than their hourly wage or salary. You’re also going to have to pay things such as Social Security and Medicare taxes, as well as a couple mandated types of insurance. There are also smaller considerations, including things such as uniforms, supplies and additional workspace.

Con – Those Costs Can Change: Typically, if you bring on an employee, you set an umbrella of various tasks, duties and responsibilities that all fall under the set rate of pay, which makes it much easier to project your costs. Independent contractors, however, tend to set pay rates based on the task and even based on individual projects. That means your worker expenses can fluctuate based on what you need at the time.

Pro – Get What You Want, When You Need It: The flipside to that is, if you only need a couple of very specific projects completed, it may be worth it to just hire an independent contractor. It makes no sense to hire a employee to work 40 hours per week if you have 50 hours of work to do this week, but only 15 next week … and you’re not even sure about next month. Independent contractors allow you to staff up and staff down depending on your specific needs.

Con – Inconsistency: If your work needs do tend to fluctuate, you might be lucky enough to find an independent contractor who’s ready to push the pedal when you have gobs of work, and find other things to do when you scale back. But typically, high-quality contractors can find steady gigs with fewer unknowns, so it might be the case that a contractor who aced a project three months ago is no longer available, meaning you have to scour for another contractor whose work might be inferior, or simply inconsistent with what you’re used to.

Pro – Fewer Legal Issues: Frankly, independent contractors have fewer workers’ rights than traditional employees, including minimum wage, higher overtime rates and protection from wrongful termination.

Con – Bigger Penalties: Should you “misclassify” an independent contractor (essentially, should you use an independent contractor as an employee, but fail to pay them and give them the benefits as such), you’ll be on the hook for things like reimbursed wages, back taxes, employee benefits and penalties. That’s in part because taxes for independent contractors and freelancers are far different than those for regular employees.

Unsure about what your next hiring step should be? McManamon & Co. offers business consulting services that can help you figure out what you need most in your next one or one hundred hires, as well as tax services that will aid you with things such as 1099 filings.

Build your small business the right way. Call McManamon & Co. at 440.892.9088 or contact us online and find out what you need to make the right hiring decisions at every step of the way.

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