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New Year, New Employees: Should I Hire Contractors? - new-year-new-employees-01-c.jpg

New year, new employees: Should I hire contractors?

Great news for small business owners! In Rocket Lawyer’s Semiannual Small Business survey, we spoke to 848 small business owners nationwide, and a whooping 65 percent of them report their business is growing or booming! We’re carrying that same sense of optimism into the new year. One way to continue that business growth in 2016? Reinvest in your business by hiring more people! Here’s how you can get started:

The current state of independent contractors vs. employees

Hiring sounds simple but it can be quite complex. For the last few years, there’s been quite a controversy over the (mis)classification between non-traditional, independent contractors vs. traditional, full-time employees. Why does this matter to you? The government, especially the Internal Revenue Service (IRS), has announced that in 2016, they’ll be cracking down on small business owners who are (intentionally or unintentionally) misclassifying workers for tax purposes then treating their workers in a different (and illegal) way in practice and in the workplace. If found guilty, you could be subject to heavy penalties along with payroll taxes that are past due.

So what’s the difference anyway?

There’s quite bit of difference between independent contractors and full-time employees, which is why the IRS and other government agencies have made it a priority to further investigate the matter this year. Simply put, independent contractors and full-time employees may do the same kind of work but that’s not what differentiates them. Instead, it’s how they function that sets them apart.

In essence, contractors are more like self-employed individuals since they are hired on a project by project basis and usually have control over how they get the work done. Full-time employees, on the other hand, aren’t considered self-employed and generally have to follow the company’s rules and schedule outlined in their Employee Handbook. Since independent contractors are similar to self-employed individuals in practice, employers aren’t responsible for payroll taxes nor do they have to provide benefits, which is unlike full-time employees that normally get offered benefits packages that include paid-time off and other incentives.

Should I choose a contractor or a full-time employee?

It depends on a lot of factors. As the business owner, you know best. What kind of work do you need done? If it’s a one-off project, it may be best to hire an independent contractor. On the other hand, do you prefer to have more control in how the work is done? Would you prefer the worker come into the office during regular work hours? If you’re looking for a more stable employee, you may want to hire a full-time employee.

In the end, whether you choose to hire a full-time employee or an independent contractor, you’ll want to solidify a working relationship between you and the new hires with an Independent Contractor Agreement or Employment Agreement. It’s a good way for both parties to communicate what’s expected (hours, salary, length of hire) and protect themselves if something goes awry.

I’m ready to hire. Where do I begin?

Whether you’re a new business owner or a veteran in the game, it’s always a good idea to brush up on your HR knowledge. It’s a good way to stay compliant and understand the rules and regulations that surround hiring employees for your business. We have a Human Resources 101 guide that gives you a great overview of the whole process, from finding the perfect candidate to making sure your company stays compliant with HR laws.

Before you bring your new hire on board, make sure you feel confident that everything is straight order. If you have any unresolved legal questions, it’s a good idea to ask a lawyer.

Will you be hiring new employees this year? We’d love to hear in the comments below!

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