Regular vs. Contract Employment Status Matters

As an entrepreneur, hiring new employees can be a big investment. The cost of training, extra work space, a computer or other necessary tools can wield a hefty price tag. There are options however, to save on this investment. Independent contractors can provide services for a fee that is usually less than the investment into a new employee. But, how do you know if you need a regular employee or if a contractor is the best choice? Here are a few questions to help determine which one will serve your needs most effectively.

1. Are you looking for help on one project or long-term assistance? If you need someone to build a deck for you, this is a finite project that a contractor would be more than capable of completing. Do you need someone to physically come to your place of business for the foreseeable future to perform ongoing tasks? This long-term relationship is that of a regular employee. By outlining the types of tasks you need completed, it can become more clear which classification of employee you require.

2. How permanent would you like the relationship to be?  Consider how long you will be working with this person. If you have one project that needs to be completed and you simply don’t have the bandwidth or skills to complete it, you may want to hire an independent contractor to complete it for a fee. If you are looking to delegate duties from your plate, a permanent employee would likely fit your needs more closely.

These two simple questions put you well on the way to determining the type of employee you need and how to approach the hiring process. By determining whether you need a contract or regular employee before beginning the hiring process you can narrow down the field to find exactly the person you are looking for with less hassle.

Employment classifications are very important for tax purposes as well. Three factors are assessed by the IRS to determine employment status.

• Behavioral Control: covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
• Financial Control: covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
• Type of Relationship factor: relates to how the workers and the business owner perceive their relationship.

Whether an employee is considered regular or an independent contractor will determine how taxes are paid, whether withholdings apply and what tax forms to file. The IRS provides detailed information about determining the status of employees as well as the proper steps to take when filing new employee tax forms.

Assess your organization’s employment needs early to streamline the process and find the right fit the first time. The legal implications of employment status affect both you and your employee so correct classification is pertinent. Should you come across questions regarding employment status visits www.irs.gov. There you will find more information about how to classify new employees and the corresponding tax forms to fill out.

Disclaimer: This information is provided for reference only. As always, make sure to check with the IRS for latest rules and regulations applicable to your business