How to hire is often among a company's biggest ongoing questions, especially because the decision largely depends on your company's particular needs and the nature of the work itself. Cost and flexibility are perennially important, and will be affected by how workers are classified. Different classifications include:
- Independent contractor
The IRS gives some detailed information to help you determine which type of worker you're engaging. Here are some practical considerations to keep in mind as you determine what type of worker is best for your company.
1. Employees and Non-employees
An employer's administrative responsibilities in regard to independent contractors differ from those required for an employee. There are various tests for determining whether an individual is an employee or independent contractor. The Internal Revenue Service (IRS) uses certain tests for federal tax purposes, while different tests are used by the Department of Labor (DOL), the Equal Employment Opportunity Commission (EEOC) and state agencies.
You might hire a freelance writer or Web designer to create your website or craft marketing materials, for example, but you are not required to provide benefits or pay FICA taxes for these independent contractors. If you pay a freelancer $600 or more in a calendar year, you are required to file a Form 1099-MISC notifying the government. You will also need to provide a copy of the form to the contractor, but she remains responsible for paying all taxes.
2. Full-Time and Part-Time Employees
Employees who work fewer than 30 hours per week on average are typically classified as part-time employees for purposes of the ACA. However, for other purposes, you, the employer, can make this determination at your discretion, according to the DOL. The DOL also states that minimum wage, overtime pay and record keeping regulations are equal for full- and part-time employees under the Fair Labor Standards Act (FLSA). You must withhold FICA taxes and pay unemployment and worker's compensation for all employees, but employers may have more flexibility with respect to health insurance and retirement benefits supplied to part-time workers.
3. Temporary and Seasonal Employees
"Temps" may be hired to cover for employees on medical or extended leave, or to fill temporary holes in a company's workforce. If you're much busier during the holiday season or during the summer, for example, hiring seasonal employees may be necessary. You could hire a seasonal employee or temp directly, but this is usually done through a staffing agency who serves as the individual's employer. As a best practice, you may investigate the staffing agency to ensure that it has properly classified these workers as employees, issued them W-2s and complied with FLSA obligations. Keep in mind that the agency may charge you a fee based on the amount of the temp/seasonal employee's compensation. According to SHRM, this can range between 30 and 40 percent, even as high as 150 percent.
Remember, if you are hiring temp or seasonal workers directly, they are still part- or full-time employees, so the same rules apply as above, according to the DOL. You'll need to offer state or federally mandated benefits, withhold taxes and comply with the FLSA.
The Takeaway: Don't hire anyone until you have carefully considered both your business needs and the implications of the new hire's classification. If you're facing a short-term need and the work sought is not a key aspect of the business, you may consider hiring an independent contractor as long as the nature of the relationship satisfies the various independent contractor test. If you face strong seasonality, temporary or seasonal employees could save you money while providing extra help. As with all business considerations, if you need further help to understand how to hire, speak with legal counsel.
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