Q: I’m going to need to get extra help for my gym to get through the increased traffic we see at the start of the new year. I’m not sure how to go about hiring for my business. Do I bring them on as employees or contractors? What’s the difference?
A: I love a business owner who thinks ahead! I’m guessing that there was one season where your gym was not ready for the holiday crush, and you learned from it so as never to make that mistake again.
Whatever your reason, I’m all for it.
We all throw around the word “employee” to apply to folks who may not be, such as consultants and independent contractors (ICs). There are very significant differences.
Overall, hiring an employee takes on a significant level of responsibility for business owners, from taxes to legal obligations. First, inform yourself of the differences, then determine what’s right for your business. Here’s what to consider.
How much responsibility do you want to have for overseeing those who you hire? Do you want to be able to dictate their working hours and how they get the job done? If so, then taking on an employee is the way to go.
Another consideration is if the work is central to your business. For brick-and-mortar businesses, there are just some jobs that require folks to be at your physical location. There are others, like your accounting and marketing, that can successfully be done by someone offsite. In those instances, you can hire folks as ICs. Be aware, however, that you need to be comfortable with your contractor’s level of professionalism and skill to trust that they will get the job down with little to no supervision.
You wrote to an accountant’s blog, so you know that talk about taxes had to be coming, right? Think about the level of complexity you can handle. Because when you take on an employee, there is a lot that must account for and prepare to pay into, including:
- Payroll taxes
- Unemployment compensation
- FICA (social security and Medicare)
For ICs, the tax picture is much simpler. You don’t have to worry about any withholdings or paying on their behalf for their benefit. Instead, you’ll need them to:
As you have much less control over an IC, you will want to be sure that you have a contract with them that outlines the specifics of your work together. A contract should include details about the work that they will do for you; the rate of pay; and the mode and frequency of payment. You may also wish to include restrictions on working with competing businesses and a nondisclosure agreement.
As a business owner, you have much less control over the actions of an IC. You have far more say in the work of your employees, but with that comes significant legal and financial responsibility. Weigh the pros and cons, talk to both a lawyer and a tax professional, and I’m confident you will easily find your solution.
You guys ask the greatest questions! Thanks for asking one that I know will help many other business owners. Best of luck to you!
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