As we reported last week, the majority (61 percent) of small businesses reported growth throughout 2014. The best part? An impressive 80 percent are optimistic that their business will fare even better in the New Year. With this optimistic outlook and strong fiscal 2014, small business owners will be reinvesting in their businesses by hiring more people — but not in the way that you might expect.
Enter: the “solo entrepreneur”: Small businesses across the country are reporting an uptick in the hiring of non-traditional, independent contractors vs. traditional, full-time employees. What does this mean for you, as a small business owner looking to hire new members of the team?
1. Know What You Want
Small businesses are hiring independent contractors (54.6%) and part-time workers (44.9%) as opposed to full-time (39.8%). Are you looking to hire and overwhelmed by these options? First, you need to know whether you’re looking to hire an independent contractor or an employee. An employee does work for you on an ongoing basis, and you dictate how the work is done. They tend to work for you in the longer term–beyond an individual project. Independent contractors, on the other hand, are usually hired for individual projects. They are judged on the completion of a project, and the employer doesn’t dictate how they get the work done. Looking to hire millennials? Many folks in this generation are entering the workforce and looking for non-traditional jobs. A recent Millennial Branding report found that 45 percent of Millennials will choose workplace flexibility over higher pay.
Hiring employees tends to be more complex, because you need to think about payroll taxes, as well as potentially providing additional benefits, like health insurance, unemployment, disability, vacation, etc. Independent contractors are responsible for providing their own benefits, and the employer isn’t responsible for payroll taxes. Your reasons for choosing one or the other may depend on the type of work, and the amount of flexibility you want.
One caution: you cannot treat a worker like an independent contractor for tax purposes, and then treat that person like an employee in practice. You could end up being liable for payroll taxes later on if the IRS finds that you’ve misclassified your worker in this way. It’s best to have a chat with your financial advisor and scope out the tax consequences of your choice.
Whether you go with an employee or an independent contractor relationship, make sure you put it in writing with either an Employment Agreement or an Independent Contractor Agreement. That way your work relationship is crystal clear.
2. Get Off to The Right Start
When you’re ready to find your new worker, it’s a good practice to follow a certain procedure when it comes to hiring, no matter how your workers will be classified in the eyes of the law. Here are the basics.
To find the right candidate:
- Write a job description.
- Ask candidates to complete an Employment Application.
- Interview candidates (and make sure to avoid discriminatory hiring practices).
- Conduct background & reference checks (remember to get permission from the candidate with a Consent to Background and Reference Check form).
To make the hire:
- Write an Offer Letter (not necessary for independent contractors)
- Create an Employment Agreement or an Independent Contractor Agreement
- Have your new worker sign a Nondisclosure Agreement and an Employee Invention Agreement, to make sure none of your company trade secrets get leaked and to clarify ownership of any existing intellectual property.
- Have your independent contractors complete IRS form W-9, so you can report their earnings. Employees should complete a W-4 so you can determine how much payroll tax to withhold from their paychecks.
3. Get Help When You Need it
While you can do a good job of being your own HR department, it’s essential to know when you need more help.
- A trustworthy financial advisor can fill in the gaps when it comes to tax questions.
- A reputable accounting software can be a lifesaver when it comes to figuring out payroll.
- It’s always a good idea to find a business lawyer before you make your first hire, or anytime you have an unanswered legal question.
You might also want to check out common labor laws you may be breaking without realizing it, and how to hire temp workers the right way. And of course, visit the Rocket Lawyer Labor and Employment Center for more help!