Once a business starts growing, there will eventually be a need to hire one or more workers on a part-time or full-time basis. Before hiring anyone, a business owner should examine the current and projected needs of the business and look at the legal implications of different categories of workers, including full-time employees, part-time employees, and independent contractors. A business attorney can help a business owner make the decisions that will work best for his needs.
What is the Difference Between an Employee and an Independent Contractor?
The number of Americans who work exclusively as independent contractors is growing. According to Forbes, as many as 43% of the U.S. workforce may be "gig workers" by 2020. For small business owners, this could mean that it will be more difficult to find people willing to sign on for a 40 hour per week job. Business owners should know the difference between an employee and a contractor, and how each can help his business.
Generally speaking, an employee works only for you, while an independent contractor works for himself. If you hire an employee, you control their work schedule and supervise their work. Employees generally work at your business' location and have set schedules, even if the schedule may vary from time to time. They work under your supervision, use tools you provide, and are expected to follow your directions.
On the other hand, independent contractors often work from home or at their own business locations and set their own schedules. You do not control how the contractor performs the task for which he has been hired, as long as the finished product meets the specifications agreed upon by both parties.
Depending on the size of your business and the number of workers you employ, you may be required to provide worker's compensation insurance for employees. You will also be required to follow federal and state income tax withholding laws for your employees. Neither of these is required for independent contractors.
What Are the Advantages and Disadvantages of Each Type of Worker?
If your need for workers is intermittent or seasonal, you may find that independent contractors can fulfill your needs, saving you the expense and trouble of unemployment insurance, worker's compensation, and income tax withholding. If you need help on a regular basis, though, you may find that you need one or more regular employees.
Some of the advantages of hiring independent contractors include:
- Saving money. You will not be required to provide worker's compensation insurance, unemployment compensation or contribute to Social Security and Medicare taxes.
- Less paperwork. You are not subject to state and federal tax withholding laws for independent contractors.
- Reducing your liability. As an employer, you may be legally responsible for your employees' actions in some situations.
- Possible limited availability. Independent contractors work for multiple employers and may not be available when you need them.
- Lack of consistency. It may be difficult or costly to be constantly training new workers. You are not guaranteed that the quality of work you receive will be consistent.
Since independent contractors are not eligible for worker's compensation, you may be liable for injuries sustained by the contractor while working for you.
Consult a Business Lawyer
A business lawyer can help analyze the needs of your business and discuss in more detail the advantages and legal consequences of the different options you have for hiring workers. Call the attorneys at Williams and Jorden at (814) 315-9255 or click here to schedule a consultation.