Hiring help is just one of the many parts of starting a small business.  Whether you are setting up your business structure or hiring help, these decisions can have long-term consequences for the legal protection of your business. The attorneys at LexLaunch.com have put together a 5-part series to guide you through some of the more confusing and challenging issues when starting your small business. Today, for our first part in the series, we’re discussing the differences between hiring a contractor and hiring an employee.

If you are starting to get traction in your small business, you might be considering offloading some of your responsibilities (accounting, customer service, purchasing and inventory management) by hiring additional staff. If you are ready for this step, there are many things you need to consider. For example, there are 2 basic types of hires: employees and contractors. Ultimately, the type of workers you choose can have major implications for your small business. From both a legal and financial perspective, the type of hire you make can help or hurt you from a legal and financial perspective. It’s always important to seek professional guidance before making a decision that might increase the risk of losing legal protection.

The main difference between contractors and employees is that contractors are in business for themselves, and employees are in business for you. When you hire a contractor, you are essentially hiring another business to perform a service for your small business. In short, the paperwork burden is on the contractor and not your business. If you hire an employee, you are responsible for the taxes and treatment of that employee under the law. There is paperwork that must be filed with the government on a regular basis to keep your protection intact. Hiring help can be overwhelming.

If hiring a contractor sounds like a better idea for your small business, it’s usually the case. However, there are certain guidelines that must be met for your new help to legally be considered a contractor. If you are ever caught treating a contractor like an employee, you can lose legal protections under the law. Be sure you hire help the right way.

To be considered a contractor:

  • The worker must have his/her own tools to do the job
  • The worker must have his/her own place of business
  • The worker does work for several other clients
  • The worker does the work on his/her own time and sets the hours

To be considered an employee:

  • The worker works for you and only you
  • You set the worker’s hours
  • The worker uses your equipment to do the job
  • The worker gives orders or supervises any of your employees

For most small businesses, if you can find independent contractors to do the work for you, there’s really no reason to hire your own employee. However, hiring your own employee usually makes sense if the nature of the work is unique or special to your company, or if you want to establish loyalty and continuity with your staff and customers. In general, it’s usually best to consult with a legal expert to discuss your option when it comes to onboarding staff in your small business.  The experts at LexLaunch.com are available for consultation and guidance. Call the attorneys at LexLaunch.com at (816) 434-6610 or click here for more information to learn more about how to decrease risk and protect your small business.