Employee vs. Independent Contractor - which one should you hire?
Learn the difference.
You’ve finally decided that you cannot do everything, and that you don’t want to keep sacrificing everything while wearing all of the hats in your business. Yay!!! But now you are ready to hire support and you don’t know where to get started. The first thing you need to decide is whether you want to hire an employee or an independent contractor.
Did you know that you don’t necessarily need to hire an actual employee (a traditional W2 employee)?
You can hire an independent contractor (1099) instead of a full-blown employee. This decision can save you time, money, and set-up costs. Virtual assistants most often fall into this category of “independent contractor.” Hiring a virtual assistant is a great place to get started if you have never hired before!
So what exactly is the difference?
It’s important to understand the difference between the two types of workers before you make your decision. At a high level, independent contractors are mostly project-based workers who have autonomy in how they complete the work. Employers have control over what work that they do, very much like when they hire a consultant, but they don’t control how the work is completed.
Independent contractors are self-employed and typically:
Provide their own tools to complete the work,
Work on their own schedule,
Are given a goal and deadline but no specific schedule of how and when they will do the work
Submit invoices for the work they perform,
Pay their own self-employment taxes.
Provide their own business licenses, permits, etc.
Can work from any location they desire
Often service many other clients at the same time
Invest in their own training
Employers must provide a 1099 at the end of the year that includes the amounts that were paid to the contractor (for transactions accounting to $600 or more in a year).
In contrast, an employee of a company is determined by who has control.
Employees of companies perform services that can be controlled by an employer.
For example, If the company directs when, where and how work is done, this indicates a possible employment relationship. This also means that employees are protected legally and employers are also obligated to pay taxes on their behalf and sometimes even provide benefits. This means that employees typically:
The employer typically provides work-related tools and training
Employees work hours are dictated by the employer’s schedule
Are paid on a scheduled basis (weekly, biweekly, or monthly) through payroll
Earnings are subject to FICA and income tax withholding
Employees can and are often asked to track their time
More likely to be reimbursed for work-related expenses
Can typically be fired at any time (vs. being subject to contractual obligation)
When it comes to scaling your small business and seeking support, you should consider what type of support you want to hire and examine the pros and cons of both options.
Important Links:
Check out these links to determine if the individual you are hiring qualifies to be an independent contractor or should be classified as a traditional employee.
https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee
https://www.irs.gov/pub/irs-pdf/fss8.pdf
What’s at Risk?
IRS penalty for employers who willfully misclassify employees as independent contractors. These penalties range between $5,000 to $15,000 for each violation.
Hiring isn’t something you have to do alone - we can help.
Reach out to me at dot@dotrockconsulting.com or consider booking a Connect the Dots 1-1 intro consulting session. We can help you craft and execute a plan for hiring your rockstar team so you can finally get back to doing what you love, and stop doing everything in your business.
