If you run a growing business then you’ve probably already found the need to get help carrying the workload, or soon will. Almost anyone will tell you that you should avoid giving away equity in the company (unless there is a really good reason) so the best options will be to hire employees or hire independent contractors.
Although you can pay an employee or independent contractor to do the same type of work there are key legal differences between the two. It’s important that you understand the distinctions and choose the option that will be most beneficial to your business.
Perhaps the biggest benefit of hiring an employee is that the employee-employer relationship affords both of you much more security than you’ll get when hiring an independent contractor. Employees are covered under various state and federal laws whereas a contractor is not. If you hire an employee than you have much more control over where and how work is performed because your relationship with an employee is much more exclusive and binding. That comes with pros and cons of course.
Hiring an employee requires jumping through more hoops because the hiring practice usually involves an application and interview and, once hired, more information is required because you will be responsible for reporting payments during the tax year on a W2.
Other considerations also come into play, such as workers compensation, benefits (pension, insurance, etc.), paid vacations, regular paychecks, and meeting minimum wage requirements. While that might seem like a lot to take on, it can often be worth the work because these employee benefits make it much more likely that you retain employees for longer terms and the nature of your legal relationship means that there is room for their responsibilities to evolve as time goes on.
Independent contractors have a much less stringent relationship with those for whom they do work. If you hire an independent contractor then the agreement made is specific to the job they are performing and will set a specific payment amount. You cannot expect a contractor to do anything not specified in the signed independent contractor agreement.
The big benefit to independent contractors is that you don’t have to worry about their taxes (issuing a 1099 is required for payments exceeding $600, but that’s it), clearing minimum wage requirements, providing benefits and so on. In many ways this arrangement is simpler: you agree to pay someone to perform certain work and your legal relationship does not extend beyond that agreement.
One drawback to independent contractors is that they will be under no obligation to continue performing services after the terms of a specific agreement are complete. So if you are looking for help on a responsibility that is a crucial and continuous part of your business then it can be risky to delegate that to an independent contractor.
Call J. Cutler Law Today
At J. Cutler Law, we offer free consultations for you and your business. We draft employee and independent contractor agreements and can advise on the best course of action in your specific situation. Call us today for a free consultation at (801) 618-4469 or contact us online.