Are You Classifying Your Employees Correctly?

As your business grows, the need to bring on employees becomes essential to ease the burden of handling the business on your own. This need for growth will prompt a lot of different questions, but the most important one of all, who should you hire? Not only do you need to figure out what position to hire for, but you have to find the right person to do that job, and you also need to decide whether you should hire an employee or a contractor. 

In order to determine whether you need a contractor or an employee you need to determine what the needs of the business are and determine the working style and conditions that you will need in your business. 

When you hire an employee, you have more control over their working hours and how they perform the tasks that you hired them to do. In contrast, when you hire a contractor, that control over their working hours and how they do their work remains largely with the contractor to determine. A contractor is essentially like their own little business, responsible for their own hours and way of working and who they work for.

You will also have to look at the cost associated with each. While you may have to pay contractors a higher hourly rate than you would with an employee, the contractor is responsible for paying their own taxes, Medicare, Social Security, and other payroll expenses that you would be responsible for as an employer if you choose to go that route. You need to take these financial implications into account as you evaluate your hiring options. 

There are some businesses that think that they can save money by hiring a contractor, but treat them like they are an employee. That is not the case. If you are treating them like they are an employee and control their work and schedules like they are employed by you, they need to be labeled as an employee. 

While there is no definitive answer as to whether you should hire a contractor or an employee, you need to make sure you are classifying them correctly in order to be in compliance with legal and tax regulations. 

If you are looking into who to hire, you can listen to our podcast Contractor Biz Corner, Episode 7: Book Review of Who Not How (click here to listen to the episode), where I go into more detail about determining who to hire.