Ask SCORE: Should I work with contractors or hire employees for my small business?

As your small business grows, you will reach a point when you can’t do everything by yourself. To get the help you need, you can choose to outsource various tasks to independent contractors or hire employees and delegate the work.

To decide which will make the most sense for you and your company, it’s important to understand some of the key differences between working with independent contractors and having employees on staff.

Years ago, I owned a “virtual” marketing services firm. I worked with a group of talented creative people — designers, illustrators, photographers, and others. I asked them to work on projects for my clients, and they often asked me to work on projects for their clients. We all had licensed businesses and we enjoyed working with each other.  

Employees Vs. Independent Contractors: Four Points Of Comparison

Compensation: Independent contractors who do work for you operate under their own business names. They are not on your payroll, and they will issue you invoices for their services rendered—typically based on an agreed upon flat fee or a per hour rate. With employees, you provide regularly scheduled paychecks that reflect compensation according to the salary or wages you agreed to pay them.

Tax Withholdings: With hired employees, you withhold federal, state, and local taxes from their paychecks—and you’re responsible for submitting those tax payments to the tax authorities. Independent contractors, on the other hand, must submit their own federal, state, and local income tax payments—including self-employment taxes (Social Security and Medicare/Medicaid)—to the tax authorities directly.

Company Benefits: When you have employees, you may be required by law to provide certain benefits, such as medical insurance, half of the each employee’s Social Security and Medicare tax obligation, workers compensation insurance, plus family and medical leave. You are not, however, required to provide benefits to independent contractors.

Management of Work: With employees, you have more control over how work is done, when it’s done, and where it’s done. With independent contractors, you can’t dictate their hours, the equipment they use to perform their work, or how to do their work. You tell them what results you need, they quote a price, and you let them do the work.

Which Should You Choose?

That depends. Using independent contractors might save you some money on labor costs, minimize liability, and give you more flexibility if you choose to discontinue your working relationships. On the other hand, hiring staff gives you more control. You call the shots on how, when, and where the work is performed.

If you choose to sign on independent contractors to help you with your work, make sure it’s clear they are not employees. Consider having them sign an Independent Contractor (or Work For Hire) Agreement and request they sign a W-9 (Request for Taxpayer Identification Number and Certification) form to identify them as a contractor.

If you need some help considering your choices, please reach out to Kitsap SCORE for guidance. SCORE volunteers are experienced business people and they have a wide range of experience in helping entrepreneurs start and grow their companies.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s