Should I hire and employee or a contractor? This is a question small business owners ask A LOT. And the answer is ….it depends. I am going to share with you the top five things to consider when hiring an employee or contractor and these differences will help you can decide which option works best for you and your business. But before that you need to ask yourself one question. The answer will determine whether or not the person you are hiring is an employee or a contractor. According to the IRS, when hiring a person you need to ask yourself, “Do I have the right to control and/or direct the work that will be done and how it is to be done?” If the answer is yes than that person is an employee. If the answer is no then they are a contractor.
- You as the employer must pay 7.65% or one-half of the employee’s social security and medicare. The other half is withheld from the employees check. This is called an overhead expense that will come off your bottom line.
- You as the employer set’s the time and hours to be worked. You are in control of when that person must show up for work and when they can leave.
- As the employer, you are expected to train an employee to perform his/her duties the way you want them done. Although they may have some skills and knowledge about the duties to perform, you will have to train them how to do things your way.
- An employee is paid at set intervals such as weekly, bi-weekly or even monthly at a rate you decide upon. This allows you as a business owner to plan and budget for the year which allows you to have some control over your cash flow.
- An employee will use your equipment to do their job. It is your responsibility to make sure you have all of the equipment necessary for them to be able to do their job.
- A contractor pays their own social security tax (the entire 15.3%). You are not responsible for any taxes as it relates to a contractor.
- A contractor set their own hours and can show up with they want to work. You are relying on this person to be a professional and show up at the agreed upon day and time, but there is a possibility they may not come. And although you may be upset or inconvenienced, there is nothing you can do about it.
- A contractor has their own methods to perform the duties they are hired to do. You can make recommendations and suggestions, but ultimately it is up to the contractor how they will perform the job at hand.
- A contractor is paid on commission, when a job is complete and at a rate they determine. And this rate is often higher than the pay rate you would pay an employee. Sometimes this is because this person is presumed to have the skill-set to do the job without any direction and is therefore being viewed as an expert. This expense may be planned for, but often comes in higher than anticipated.
- A contractor supplies their own equipment. They are responsible for bringing all the materials, supplies and equipment necessary to perform the job as expected.
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