Hire a Contractor or an Employee?

Your organization is taking the market by storm and the workload has gotten larger than that which you can handle on your own. You’ve gotten positive feedback on the implementation of your business plan and even gotten a small business grant for women owned businesses from your local Community Foundation. Now it’s time to add staff. But do you hire an employee or look for an independent contractor?

Independent contractors and employees are not the same, and it’s really imperative that you comprehend the major differences. Comprehending these specific differences can help you know what your first hiring move should be and influence how you withhold an assortment of taxes and steer clear of expensive legal penalties.

What’s the difference?

An Independent Contractor:

  • Functions under a company name
  • Has his/her own staff
  • Keeps a different company checking account
  • Markets their organization’s products and services
  • Bills for work completed
  • Has got more than a single buyer
  • Provides own equipment as well as sets own work schedule
  • Keeps organization information

An Employee:

  • Does chores determined or controlled by other people
  • Is provided training for work to be done
  • Works for only one employer

A lot of small enterprises rely on independent contractors with regard to their staffing needs. There are lots of advantages to making use of contractors instead of using the services of employees:

  • Savings in personnel expenses
  • Lowered legal liability
  • Flexibleness in acquiring and firing

Why Should It Make a difference?

Mistakes in classification of a worker as an independent contractor could have a number of costly legal implications.

Should your independent contractor is found to meet the legal meaning of a staff member, you may be forced to:

  • Compensate them for earnings you should have compensated them within the Fair Labor Standards Act, together with overtime and minimum wage
  • Make payments towards back taxes and fees and penalties for the purpose of state and federal taxes, Social Security, Medicare and unemployment
  • Cover any existing unpaid injured personnel workers’ compensation benefits
  • Provide employee benefits, together with medical care insurance, a retirement plan, and so forth

Tax Requirements

Visit the IRS Independent Contractor or Employee self-help guide to read about the taxation implications of either circumstance, get a hold of and fill out a form to have the Internal revenue service officially verify any workers’ status, and locate relevant information.

Employment Info

There isn’t a particular assessment for identifying if someone is definitely an independent contractor or an employee using the Fair Labor Standards Act. Having said that, the subsequent guidelines ought to be taken into account:
The particular degree which the help rendered are a fundamental element of the particular principal’s small business
The permanence of the business relationship
The amount of the assumed contractor’s investment in facilities and devices
The makeup and level of control by the business owner
The alleged contractor’s possibilities to make money
The degree of initiative, judgment, or foresight in open market competition with others that is required for the success of the claimed independent contractor
The degree of independent enterprise organization and operation

Whether or not an individual is an independent contractor or an employee usually is determined by how much control used by way of company over the work being done. Study Equal Employment Opportunity Laws – Who’s Covered? for additional info on the way to determine whether one is an independent contractor or an employee, and also which are covered according to federal laws.

Pre-Employment Background Checks

Getting the right people to support your small business can be critical to your success.  Knowing as much as you can about employees before they come on board is vital.  

The following list includes the kinds of information that companies commonly consult as part of a pre-employment check, and the laws governing what constitute a legitimate investigation. 





Credit Reports Under the Fair Credit Reporting Act (FCRA), businesses should get a worker's authorization prior to seeking an employee's credit report. If you choose not to promote or employ somebody based upon information in the credit report, you have to offer a copy of the report and let the candidate or employee understand his or her right to challenge the report under the FCRA. Go to the FTC s Bureau of Customer Security s website to learn more. Criminal Records To what level a personal company may consider an applicant's criminal history in making hiring choices varies from state to state. Due to the fact that of this variation, you ought to seek advice from a legal representative or do more legal research on the laws of your state before checking out whether or not a candidate has a criminal past. For Federal Bureau of Examination (FBI) checks, consult these resources:
  • FBI Solutions for Businesses
  • FBI Wrongdoer History Checks for Employment and Licensing
  • FBI Checks on Staff members of Banks and Associated Entities
Lie Detector Tests The Employee Polygraph Defense Act restricts most personal employers from utilizing lie detector tests, either for pre-employment screening or during the course of work. The law includes a list of exceptions that put on companies that supply armored vehicle services, alarm or guard services, or those that make, disperse, or dispense pharmaceuticals. Even though there is no federal law particularly prohibiting you from utilizing a composed sincerity test on job candidates, these tests frequently violate federal and state laws that protect against discrimination and violations of personal privacy. Medical Records Under the Americans with Disabilities Act, employers can not discriminate based upon a physical or mental impairment or request a worker's medical records. Businesses can, nevertheless, ask about a candidate's capability to carry out specific job duties. Some states also have more powerful laws securing the privacy of medical records. Bankruptcies Bankruptcies refer public record and might appear on an individual's credit report. The Federal Bankruptcy Act restricts employers from victimizing applicants due to the fact that they have actually declared bankruptcy. Armed force Service Military service records might be launched just under restricted situations, and authorization is typically needed. The armed force may, nevertheless, divulge name, rank, salary, responsibility projects, awards and responsibility condition without the service member's consent. School Records Under the Household Educational Rights and Personal privacy Act and comparable state laws, instructional records such as transcripts, suggestions and monetary details are private and will not be launched by the school without a student's authorization. Employees' Payment Records Workers' compensation appeals are a matter of public record. Information from an employees' payment appeal may be made use of in a paying for decision if the company can reveal the candidate's injury may disrupt his ability perform required tasks.