There comes a time in every startup business when an entrepreneur looks at their workload and realizes something: that they can’t do it all. To be able to grow a business while offering the same quality attention to every client, a one-person show needs to expand and get external help. So what’s better: hiring an employee or using an independent contractor?
Both have their pros and cons, and only you can decide what works for your business. That being said, here are some factors to consider when choosing between an employee and contractor.
Hiring an employee means adhering to various employment laws. These laws will vary based on your type of business and your geographical location. For example, if you operate a business in Massachusetts, you won’t be eligible for some of the California labor laws breaks. If you operate your business in Canada, there are strict labor laws regarding minimum wage, worker’s compensation, and maternity leave.
When using an independent contractor, your responsibility only goes as far as the agreement you have both made and signed. If your contractor is required to do any physical labor, legalities may still apply.
Loyalty and Control
When you have an employee, you have a degree of control over when they work for you and how focused they are on your business. When you use a contractor, you don’t always get that same level of influence. Independent contractors often have multiple contracts and clients. When you hire them, you become one of their clients rather than their employer.
Whether you work with a contractor or employee, it is important to have your expectations crystal clear upfront. If you require your independent contractor to be available on Monday mornings for a meeting, say so before hiring them and include it in the contract.
Taxes With Independent Contractor
What they say is true: the only sure things in life are death and taxes. Regardless of if you choose to hire an employee or an independent contractor, taxes are going to be a part of your existence. However, they will be handled differently depending on the route you choose. If you use an independent contractor, you may have to create a form for their tax claim. Alternatively, you may be charged taxes to use their services, depending on your location.
If you have an employee, you will have to juggle taxes in addition to incorporating payroll into your existence. Before you hire an employee, you will want to consult with your accountant to ensure you know exactly what is expected of you. Doing so will help you avoid any timely setbacks and costly fines.
Benefits and Payment
If you hire an employee, you may be required to offer benefits. With an independent contractor, that will not be the case. Alternatively, with an employee, you can determine what you pay and what tools are used to complete the task at hand. An independent contractor may charge more as they have to operate like a business and supply their own tools and expertise to a task.
With an employee, you know you are paying them to do a job. With an independent contractor, they may subcontract some of the work to take on more clients, kind of like you plan on doing with them! Whereas an employee will have to ask for vacation and schedule around your needs, an independent contractor can create their own schedule and simply not take pay during their vacation period. While you aren’t paying for the vacation time, it can add challenges to your timeline.
Whether you choose an independent contractor or employee, having a formal, signed agreement in place is crucial. Do your due diligence and determine which option is best for your business needs.