One of the most exciting–and terrifying–aspects of being a small business owner is hiring new employees. On the one hand, you’ve grown your business enough to need extra hands, but on the other hand, you’re allocating money to bring on people to help you continue to grow. While there are times where part-time or full-time employees are needed, independent contractors can be extremely useful for certain roles. We’re going to break down the difference between the two and the best practices for hiring independent contractors for your business so that you can feel confident in your decision.
What Is The Difference Between Independent Contractors And Employees?
While a business may pay an employee and an independent contractor for the same work, according to the U.S Department of Health and Human Services, the biggest difference is tax, Social Security, and Medicare. As an employee, the company withholds these from wages, whereas an independent contractor does not get taxes withheld.
Here’s a breakdown that highlights some of the other differences, as well:
Employee
- Covered by federal and state employment and labor laws
- Provides tax information using a W-4
- Claims tax information on a W-2
- Reports to Unemployment Insurance
- Earns either an hour or salary wage
- Maintains a consistent pay period
Independent Contractor
- Not covered by employment and labor laws
- Provides tax information using a W-9
- Reports payments of $600 or more using 1099
- Contract payment can be hourly, daily, weekly, or by project
There is also a difference between freelancing and contract work. Freelancing typically means that the freelancer works for multiple clients at one time. A contractor generally only works for one client at a time. You may find, when hiring, that people switch between the two based on what projects arise at the time.
Related: How To Hire The Right Employees As A Small Business Owner
Benefits Of Hiring An Independent Contractor
Find The Best Person For The Job
As a business owner, you may find yourself doing tasks that are far beyond your wheelhouse. You turn into a social media marketer, an accountant, an HR specialist, a customer service provider, and then some. There are many instances where you need an independent contractor for one specific job in which they are an expert.
Saves You Time And Money
When hiring a contractor, you don’t have to pay taxes or Social Security, and you don’t have to offer benefits. Plus, hiring and paying them requires less effort. For example, recruiting a full-time employee may take you weeks–including posting the job listing, sourcing candidates, screening and interviewing, and waiting while they give notice. Hiring a contract worker is much simpler and requires less paperwork, so they can get to work sooner, and you can get back to other tasks that need your attention.
Gives You Flexibility
No matter what kind of business you run, you’re going to experience peaks and valleys in terms of work. Some weeks you may find yourself running around, wishing there were more hours in a day while others may drag on, leaving you twiddling your fingers. Working with contract employees gives you the option to hire during those peak seasons, so you’re not stuck paying someone when business is slower. And, if you like the contract worker well enough, you have the option to hire them full-time if you see fit.
How To Hire An Independent Contractor
Recruit Independent Contractors
There are many different ways to recruit your new contractor. There are sites–which we will list later–solely for those looking for freelance or contract work. Listing your job on these sites will ensure that they reach the right people. However, they are not your only option. You may also reach out within your network and see if there are suggested contractors that your network has used. Regardless of how you go about it, the recruiting process is not that different from the recruiting process of a full-time employee.
Put Together A Written Contract Agreement
Once you settle on a candidate, you’ll want to put together a written contract agreement that discusses a clear description of the job expected, the duration, payment details, a termination clause, and any other details that may be necessary (such as an NDA). Having this agreement assures them that you will be paying for their work but also lets you hold them accountable should something go wrong.
Gather Hiring And Tax Forms
The last step in onboarding is collecting the hiring and tax documentation necessary for work. This includes a W-9 and the federal forms required for new workers. You may also want to consider adding them to your payroll or ask for invoices. Whichever you decide, always keep records.
Related: 1099 vs. W-2: What’s The Difference?
The Best Places To List Your Contracted Work
- Freelancer
- Upwork
- Monster
- Indeed
- ZipRecruiter
- Recruitment Agencies
- Consulting Firms
Related: The 8 Best Job Posting Sites For Hiring The Right Employee
Final Thoughts On Hiring Independent Contractors For Your Business
While hiring an independent contractor may seem like the most cost-effective choice, consider your business needs before following through. Ask yourself if you have the processes available to manage contract employees, if you understand the law surrounding contract work, and if you are in a financially stable place where it makes sense to hire on some part-time help.
If you said yes to all of the above, congrats. You’re ready to take your business to the next step! Once you have a strategy in place and a clear idea of what you need help with, you’re ready to hire your first contract worker and grow your business.
While you’re scouring your applications on your job boards, we’ll take care of your accounting needs. You work on bringing more people to your business, and we balance the books for you–it’s a win/win! Check out all of our services here, and don’t be afraid to contact us if you have any questions.
