Employees vs Independent Contractors: What’s the Difference and Who You Need to Hire?
Looking to expand your business means figuring out whether you’re going to hire full-time or opt for independent contractors. There are benefits to both options and definitely a few major differences. Here, we’ve broken down the different types of team members you can consider hiring to work with you and how to decide who you need to hire to help make the best decision for your business.
When to Start Hiring
Before you decide who you want to hire, it’s important to figure out when the right time is to bring someone new into your business. If you’re already thinking about it, chances are the time is right now. If you wait until you feel ready or until you are fully booked, it’s going to be even more overwhelming because it will mean taking time out of your busy workload to train the person you bring on. It can feel like a scary financial leap, but bringing on help will give you more time to focus on money-making activities in your business. Now is the time to start the hiring process so you can effectively onboard a new team member and keep your business growing seamlessly.
The Difference Between Employees and Contractors
Who you hire depends a lot on what you are looking for this person to do and for how long. Are you looking for help with a short-term project or ongoing tasks? Do you need a lot of work completed or can the work be completed in just a few hours a week? The answers to these questions may impact what type of role you choose to hire.
When hiring a full-time employee, the employer is in charge of the work the employee completes, as well as when and how they complete it. The employee works for you. Employees are put on payroll and, as the employer, you are responsible for withholding taxes from employees’ paychecks and reporting that money on your taxes.
Much like with full-time employees, you, the business owner, are responsible for adding the employee to payroll and withholding taxes. Employees receive a W2 tax form.
A contractor owns their own business and is someone you hire to complete a project for your business within the scope of work their business is focused on, for example a social media manager. Because they are their own business owners, they are not employees of your business. Independent Contractors receive a 1099 tax form. A contractor is who you typically hire for one-time projects, such as creating a logo or designing your website, or they are brought on for hourly or monthly projects like virtual assistant work.
In the eyes of the IRS, freelancers are viewed the same as independent contractors because they are self-employed. From the perspective of conversation, the language people use on job descriptions and online indicates the term freelancer has some slight variation from independent contractor. Casually speaking, freelancer is often interpreted as someone who comes on to complete a specific, singular project, such as designing your brand or writing a blog post whereas an independent contractor can be for either a specific project, or recurring tasks.
Following Proper Hiring Procedures
Each state has different tests to determine if your new hire needs to be an employee or a contractor. Search your own state, and the state where your new hire resides. When in doubt, it’s always best to rely on websites that end in .gov and not what you read on a blog. These tests, and the type of worker you hire, will impact if you are required to contribute to unemployment insurance or workers comp insurance and how you comply with wage and hour laws. For example, can you legally have someone work a 10 hour wedding day with no break?
Why the Employee or Contractor Decision is Critical
Whether you need an independent contractor or an employee, it’s important to make sure the way you hire is in line with the requirements put forth by your state. Misclassifying an employee as an independent contractor and vice versa will lead to legal trouble and owing penalties.
How to Pay Your Team Members
The type of team members you have (employees versus contractors) may also impact how you pay them. For employees, you will need to add them to your company payroll and pay them a set amount of money (aka, a salary) on a consistent basis. If you have a contractor, your business will definitely be paying their business. For contractors and freelancers, we highly recommend you use Maroo (ahem!). With Maroo, you can upload their invoices and send off a payment for free. Your contractors and freelancers will receive a notification to connect their bank account. Once they do, they’ll get paid within 1 business day. Try it for free here: https://pay.maroo.us/v/signup