You will almost certainly realize that you want assistance when starting a new firm. Most small business owners begin by employing outside contractors to complete tasks for them, but you may eventually opt to recruit one or two employees. It’s not unusual to hear about business owners using independent contractors in today’s recruitment market. Business owners may receive the specialist assistance they need to finish a project without investing time in training or paying for employee perks and taxes. Although you pay both types of workers to complete your activities, the IRS does not consider them to be the same. If the IRS accuses you of incorrectly categorizing your employees, you may be audited.
Employees work for another person under an express or implicit employment contract, under which the employer controls their work performance in specific ways. When you hire an employee, you can entirely manage and command that person’s work during work hours, teach that person to execute the job the way you want it done, and obligate that person to work exclusively for you. You have minimal constraints or limitations on what you may assign to the employee or how you can fire them without incurring a contract termination fee. On the other hand, employee scenarios are burdened with a slew of laws and regulations. Paying wages or salaries, overtime, and other labor laws are regulated by the federal government and your state. You must also meet payroll tax obligations, including paying half of each employee’s FICA taxes (Social Security and Medicare) and collecting the other half. Unemployment insurance and worker’s compensation insurance are among the additional duties. The intellectual property of anything created by your employee will, in most cases, belong to your organization if the work is undertaken within the scope of their employment, on your time, and with your equipment. While this is the standard rule, it is always good to establish a written agreement with your employees that your firm will own their innovations and creativity.
Contracting with Independent Contractors
Independent contractors have benefits and drawbacks that are opposed to those of employees. You can delegate tasks to an independent contractor and set a deadline and work product for them, but you can’t instruct them on how to accomplish it. An independent contractor can work for others, establish their hours, and bring their tools to the job. On the other hand, Independent contractors have minimal reporting and tax obligations. You must disclose on a Form 1099-MISC the amount you paid for that individual each year, but you are not required to withhold or pay FICA taxes on these payments. An independent worker’s payroll duties are far smaller than an employee’s. When you recruit independent freelancers, things become more complex. Even if you pay the contractor, they will generally control the intellectual property rights to everything they invent or make. That is why getting an assignment in writing is so important. To guarantee copyright ownership vests in your organization, you might identify some creative works as “works created for hire” in the written agreement. However, you should employ an express transfer of intellectual property rights in your written contractor agreement for any other works (and as a fallback strategy for works done for hire).
Things to Consider While Hiring :
- Every task must be carried out under your supervision.
- You can be able to regulate the worker’s working hours and the tools and equipment they use.
- If this is a long-term demand (for example, packaging things for shipment), and if this activity is critical to your business rather than a side job, you should opt for an employee. A marketing person, for example, is crucial, although a cleaning staff may not be.
- Cleaning the offices or maintaining your computer system are examples of labor that falls beyond the scope of your company’s objective.
- A specialist who doesn’t require much supervision can do the task.
- The project is a short-term one that will be finished within a set time frame, and contractors are professional in that.
- The employee is either a professional or someone who requires little supervision.