As a business owner, one of the first things we may do when we expand our business is think about hiring some help. This may be in the form of part-time or full-time employees, virtual assistants, marketing assistants, or others who work for us a few hours a week here and there.
So how can we make sure we are categorizing these individuals correctly, from a legal perspective? Are they employees, or are they independent contractors?
Getting this right as a business owner is extremely important as there are certain rules and regulations surrounding having employees versus paying independent contractors to complete work for you. Before you hire or work with anyone in either capacity, make sure you have a proper contract (drafted or reviewed by an attorney) outlining the relationship between your company and the individual and confirming whether they are an employee or independent contractor.
In general, the primary factors when looking at whether someone who is working for an employer is doing so as an employee or an independent contractor is the amount of control we as the employer have over the individual and the amount of independence the individual has.
When you give them a task, do you control how and when they do the task, or do you just see to it that it’s completed by the deadline? Does the individual work only for you, or do they have their own consulting business of which you are just one client? Do you have a written, signed agreement with this person, categorizing them as an employee or independent contractor?
If the individual operates independently on his or her own time and completes tasks for you in whatever way he or she sees fit, as long as completed by the due date, this relationship starts to look like that of an independent contractor. Independent contractors are self-employed meaning they are to pay their own self-employment tax, and you are not responsible for their benefits, workers’ compensation insurance, vacation pay, and other employee-related benefits.
However, if this person comes into an office with you to complete tasks, work only for you, and you largely control when, where, and how this person completes tasks you assign, this relationship starts to look more like that of an employee.
As an employer, this comes with additional responsibilities, including employment taxes, workers’ compensation insurance, and possibly benefits, vacation time, etc. If you have (or plan to have) employees, make sure you are up to date on IRS guidelines to avoid miscalculating or making mistakes in completing these steps.
Keep in mind, even if you have an agreement that identifies this person as an employee or independent contractor, this will be one of just several factors that will be reviewed in categorizing this individual. If you have an agreement that confirms they are an independent contractor, but they operate day to day as an employee, the contract may be overruled, and they may be determined to be an employee.
Overall, make sure you are clear with how you will categorize each individual who works for you in any capacity, that each individual knows how he or she is categorized, and treat the individual within the boundaries of either category, so you don’t run into problems down the road.
Christy Westerfeld
Christy Westerfeld is an attorney and online entrepreneur, who specializes in helping female online entrepreneurs ensure their websites and businesses are legally protected. From setting up a business entity and getting client agreements in place to ensuring a website complies with privacy laws, Christy can help new business owners get the information they need to protect their intellectual property, keep their website compliant, limit liability on content posted, and ensure clients are signing complete agreements. When she isn’t working, Christy enjoys spending time with her husband, trail running around Orange County, and wine tasting in Temecula, CA.
Follow Me:
