Hiring Contractors For Small Business – An employee is an employee who performs the work defined by you. As their employer, you control what they deliver and how it delivers. Although the employee may have some freedom (such as flexible working hours), you have the right to manage and supervise them.
On the other hand, contractors are hired to perform specific tasks that you or your business needs. These activities are carried out without a permanent employment relationship. So while you define the results of their work, they have more control over how the work is done.
Hiring Contractors For Small Business
The definition of employee and independent contractor can vary depending on where you are based. Their classification affects their pay and their rights at work. It also changes your obligations and responsibilities. If you don’t know where to start, make sure you talk to your trusted accountant, lawyer or employment professional.
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Choosing the right type of employee can affect your entire business model. For example, Uber built its business by hiring independent contractors.
An independent contractor works on a specific job or project. If an employee’s projects have a significant impact on the future of your company, they are likely to be classified as an employee.
If your employee provides specialized or unique services, he may be an independent contractor. However, if the services or skills they provide are easily interchangeable, they are more likely to be classified as employees.
An independent contractor typically provides regular updates on their work and sends an invoice weekly or monthly.
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If you are unsure of your answers to these questions, contact your attorney, accountant, or tax office for further clarification.
Many business owners want to avoid the additional costs of having more employees, but some have no choice. You need to think about your situation to decide what is best for you.
Employees are more likely to make a long-term commitment to you and your business. Employee benefits include:
You also need to pay them on time every time – even if your business has a quiet period. So you should always save enough money to cover their salary.
Independent Contractor Or Employee?
For employees, you have specific requirements to comply with statutory wages. You must withhold taxes for your employees and manage other deductions. All this takes time, effort and money.
If you need immediate help, you can hire a contractor. You will find someone who has special skills and expertise. They are also responsible for their professional training, development and licensing.
Although you usually pay more per job or hour with a contractor, you can save money overall if you get someone to do the job efficiently. You don’t have to pay them any benefits and you don’t have to commit to a salary.
If an independent contractor doesn’t work out, you have no obligation to hire them again. But when you hire an employee and have to fire him, it’s not always easy.
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If you do not categorize the work correctly, you could be fined, fined or even in court. If you think you have misclassified an employee, you should correct it as soon as possible. It’s always a good idea to talk to your lawyer or accountant to get a second opinion.
It can be difficult to understand the difference between contractors and freelancers. But getting it right will save you a lot of headaches in the future and may be one of the most important business decisions you make. So give your business a better chance of success by hiring the right employees.
Does not provide financial, tax, business or legal advice. This guide is provided for informational purposes only. You should consult your own professional advisors for advice specific to your business or prior to acting on any Content provided. We recently published a great guide on hiring your first employees as a startup. I highly recommend reading it if you are in your first hiring phase.
For the purposes of this article, we use “contractor” as an umbrella term to describe more unpaid workers.
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At first glance, full-time employees and contractors may seem similar. You hire them to work for your company or to do certain tasks.
However, there is a big difference between the two, and as a founder, it’s important to know the difference between full-time employees and contractors.
Full-time employees are on your payroll. That means you have to provide them with a W-4 form, pay employment taxes, and possibly offer some benefits like health insurance and vacation time.
Contractors, on the other hand, are considered your other expenses and are not paid through payroll. Depending on the situation, you may require them to fill out a W-9 form, and contractors are responsible for filing their own taxes.
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Remember, this is general information only. There are always exceptions and different rules that may apply to your situation. You should always contact a tax professional with any questions about payroll employees (contractors or salaried employees).
Contractors often work for several companies at the same time. If you hire them, there is no expectation that you will be the only company they work with, unless it is specified in your contract.
On the other hand, most full-time employees will work for the same company at one time. Of course, there are exceptions such as part-time employees or side hustles. But in general, full-time employees do not work at several different companies at the same time as contractors.
Likewise, being a full-time employee requires a higher commitment than a contractor.
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Because contractors work with multiple companies, they decide how to allocate their time and which projects should be prioritized. They may work on your project a few days a week and split the rest of the week between their other clients.
Let’s say you have an urgent matter that needs to be addressed. As a founder or manager, you can ask full-time employees to make this a priority.
Contractors, on the other hand, should prioritize your immediate issue among their other clients. Sometimes this means your problem may be their second or third problem.
When it comes to early stage operations, employees typically wear many hats. Engineers can help with customer support issues. A marketer may do design work etc.
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For contractors, not so. Contractors have a more defined scope of work because you hire them for a specific project or job.
Now that you know the difference between full-time employees and contractors, let’s talk about when it makes sense to hire a full-time employee instead of a contractor.
There are certain jobs that you may not want to outsource to a contractor. For example, if you’re a non-professional founder building a SaaS company, it makes sense to hire a full-time developer instead of relying on contractors.
Since the success of your business depends on how well your software is built, you need someone who is fully committed to it and working on it for the long haul. Using contractors who can come and go at will can lead to turnover, structural shrinkage, and other long-term problems.
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As a general rule, consider hiring a full-time employee if it’s an important part of your business.
By switching to telecommuting, startups are becoming more flexible about standard 5-9 work hours. However, with full-time employees, most startups set at least an initial expectation of availability.
If you need employees to be available during certain hours of the day, a full-time employee may be more appropriate because you have less control over the contractor’s schedule.
For example, you may want a full-time customer support employee who is available during normal business hours to answer problems or quick questions.
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Subcontractors do their best to learn about your company, but the reality is that contractors have a different relationship with your company than full-time employees.
Also, because employees have been with your company for a long time and likely interact regularly, they will be closer than a group of independent contractors.
It is also easier to create a company culture with full-time employees. A tip I got from Rami Aseed (CEO) for hiring your first employees is to look at the pillars of culture.
Cultural pillars are the people who make your company great to work for and give it its identity. They are the people who start conversations with everyone, represent your company publicly, and are like the “glue” that holds everything together.
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A good example of this is Tim Solow, CEO of Ahrefs. He works on social media, speaks at conferences and in many ways has become the “face” of the company. In fact, Tim talks about Ahrefs so much that I thought he was one of the founders!
You’ve probably noticed a recurring theme here. In general, there is no expectation of independent contractors to stay long term. In fact, the typical contract worker in the US usually stays employed for about 2-3 months.
Part of the reason contractors don’t last long