| Business is booming and you have determined | | | | Contractor: Independent contractors are usually |
| that in order for your business to continue to | | | | professionals who perform services for a |
| grow, you need additional help. You can no longer | | | | company on a project basis and then bill the |
| do it all. The big question you need to answer first | | | | company for those services and related |
| is not "Who should I hire?", but "What should I | | | | expenses. The independent contractor controls |
| hire?" Do I need to hire employees (full or | | | | how and where the work is performed, provides |
| part-time), temps, independent contractors or | | | | their own tools and equipment and is responsible |
| should I out source the functions? Once you have | | | | only for the results. Employers have no tax liability |
| determined the "What" you can better answer | | | | for an independent contractor; they are only |
| that very important question - Who should I | | | | responsible for paying the invoice and reporting |
| hire?You have several different options when it | | | | the payments on a 1099 form. When hiring an |
| comes to hiring additional help for your business. | | | | independent contractor it is best to spell out the |
| As you look at the different options, you also | | | | expectations in the form of an Independent |
| need to be aware of the impact on your bottom | | | | Contractors Agreement which includes a Scope of |
| line. What type of worker (employee classification) | | | | Work. There are many versions of an |
| you hire makes a difference. You may ask | | | | Independent Contractors Agreement available on |
| yourself what difference the employee | | | | the Internet. It is always a good idea to have |
| classification makes to your business. Employee | | | | your attorney review it, since laws differ from |
| classifications impact your business's bottom line - | | | | state to state.The IRS has developed a |
| the classification impacts salary expectations, | | | | subjective 20 factor checklist for determining |
| benefits, and taxes. It can also make a difference | | | | whether sufficient control exists to establish an |
| if you inadvertently classify an employee | | | | employee-employer relationship. If the |
| incorrectly: your business can be subject to fines, | | | | arrangement fails the IRS review, an employer |
| penalties and back taxes.Employee | | | | can be liable for back withholding, penalties up to |
| Classifications:Employees: Employers typically have | | | | 100% of the back taxes, and other statutory |
| the most control over employees: you determine | | | | payments and penalties on behalf of the now |
| the hours the employee works, what they do and | | | | designated employee. If you have questions on |
| how they do it. Employees normally perform | | | | whether an individual is an employee or an |
| work at the employers location, the employer | | | | independent contractor it is best to err on the |
| provides the tools, materials, and other | | | | side of employee. It could be cheaper in the long |
| equipment; they also provide training and | | | | run.Outsourcing: Companies can outsource entire |
| supervision.Employees can be full time or part | | | | departments or functions such as shipping, human |
| time; they can be salaried (exempt from the Fair | | | | resources, bookkeeping, customer service, |
| Labor Standards Act) or non-exempt (hourly and | | | | benefits administration, or computer networking |
| eligible to earn overtime wages).Employers are | | | | to a firm specializing in that field. This can be cost |
| responsible for withholding federal and state, Social | | | | efficient; the company does not have to invest in |
| Security and Medicare taxes from employee | | | | new equipment, facilities or additional employees. |
| wages, as well as matching Social Security and | | | | The outsourcing firm can work side by side within |
| Medicare taxes. Employees are entitled to certain | | | | the company or can work out of its own facility. |
| mandated benefits such as Social Security and | | | | Standards and expectations are developed and |
| Medicare, Workers Compensation Insurance and | | | | for a flat fee the outsourcing company handles |
| unemployment insurance. As the employer you | | | | the work. By outsourcing non-core functions the |
| have the option to provide other benefits such as | | | | company can concentrate on its core |
| healthcare insurance, vacation leave and tuition | | | | business.Hiring StrategyAn important factor to |
| reimbursement. By providing other benefits your | | | | keep in mind - you are not limited to one type of |
| company becomes a more desirable place to | | | | worker. By determining your needs, you can |
| work, but you must be careful and evaluate the | | | | develop an overall hiring strategy comprised of a |
| return on your investment and the impact to | | | | mix of staffing options. During the development |
| your cash flow.Temporary or Contract Workers: | | | | of your business plan you reviewed your potential |
| These are workers who are hired on an as | | | | staffing needs based on the needs of the |
| needed basis. They may be hired to complete a | | | | business. If you didn't create a business plan when |
| project or to cover for someone on vacation. | | | | you started your business, now is a very good |
| Employers can hire temporary workers directly, | | | | time to develop one. Even though you may not |
| however most choose to use the services of an | | | | be looking for outside money, laying out your |
| outside staffing agency. Staffing agencies often | | | | business plan for the next several years, creating |
| have a selection of candidates immediately | | | | a budget and doing income projections will help |
| available. For a fee, the staffing agency retains | | | | you determine your staffing strategy. If the |
| responsibility for the compensation, payroll taxes | | | | thought of all that makes your head spin, your |
| and benefits for the contingent worker. The | | | | first hiring decision may be to retain a |
| employer has the flexibility to add qualified staff | | | | professional, an independent contractor to help |
| with minimal exposure for tax liabilities. There is a | | | | you work through your business plan and hiring |
| premium attached to this flexibility. The hourly | | | | needs. You may save significant time and |
| rates for workers hired through an agency are | | | | resources by hiring a consultant to help you with |
| usually 40% higher than the direct hire rate, but | | | | your business plan and to identify job functions |
| you, the employer are not responsible for | | | | and tasks, skill requirements and qualifications.Once |
| withholding and other benefits. For short term | | | | you are comfortable with your business direction |
| needs, this can be the most economical | | | | and budget ask yourself the following questions:1. |
| solution.Leased Workers: Leased workers differ | | | | What specifically do I need that person or |
| from temporary or contract workers; they are | | | | persons to do? Develop a job description for each |
| usually hired for an extended period of time. | | | | need which includes the following:a. Overall |
| Leased workers are obtained through a PEO - | | | | responsibility - short sentence which covers the |
| Professional Employment Organization. The PEO is | | | | general responsibilities of the positionb. Specific |
| responsible for the financial and administrative | | | | areas of responsibilityc. List of required skillsd. |
| responsibilities for the employees' salaries and | | | | Experience Requirements2. How much time will |
| benefits; the employer is responsible for | | | | that person need to spend on the required |
| determining the hours the employee works, what | | | | tasks?3. Is this a permanent position or do I need |
| they do and how they do it. Leased employees | | | | this person for a specific period of time or for a |
| work at the employer's location, the employer | | | | one time project?4. What equipment do I need to |
| provides the tools, materials, and other | | | | buy or lease for this person to come on board?5. |
| equipment; they also provide training and | | | | Do I need to obtain Worker's Compensation |
| supervision. Because PEOs usually administer | | | | Insurance, a Federal Tax ID number, new |
| benefits and salaries for large numbers of | | | | facilities?By answering the above questions and |
| employees, they are able to offer comparable | | | | reviewing the various options open to you, you |
| wage and benefits packages to employees and | | | | are well on the way towards developing a hiring |
| charge the client company less than they would | | | | strategy and deciding who to hire! The next step |
| normally pay. There are questions regarding "joint | | | | in your hiring strategy is to identify recruiting |
| employer" status with PEOs.Be sure to check with | | | | sources. The next article will discuss both |
| your state regarding unemployment law; in | | | | traditional and non-traditional sources for workers. |
| Pennsylvania leased workers paid after July 1, | | | | As always, it is wise to consult your attorney or |
| 2005 are determined to be employees of the | | | | CPA for the specific legal and tax issues affecting |
| client company and the client company is | | | | your new hires.Margaret Catalfamo is a small |
| responsible for reporting the leased workers' | | | | business consultant who provides practical, |
| wages on their UC Tax account (See Section 4(j) | | | | comprehensive advice and support in the areas of |
| 2.1 of the PA UC Law). Prior to July 1, 2005 the | | | | Business Start-Up, Strategic Planning, and Human |
| state will apply a directions and control test to | | | | Resource Services. |
| determine the employer of record.Independent | | | | |