Employee Classifications - Hiring Strategy Options

Business is booming and you have determinedContractor: Independent contractors are usually
that in order for your business to continue toprofessionals who perform services for a
grow, you need additional help. You can no longercompany on a project basis and then bill the
do it all. The big question you need to answer firstcompany for those services and related
is not "Who should I hire?", but "What should Iexpenses. The independent contractor controls
hire?" Do I need to hire employees (full orhow and where the work is performed, provides
part-time), temps, independent contractors ortheir own tools and equipment and is responsible
should I out source the functions? Once you haveonly for the results. Employers have no tax liability
determined the "What" you can better answerfor an independent contractor; they are only
that very important question - Who should Iresponsible for paying the invoice and reporting
hire?You have several different options when itthe 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 alsoexpectations in the form of an Independent
need to be aware of the impact on your bottomContractors 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 askIndependent Contractors Agreement available on
yourself what difference the employeethe Internet. It is always a good idea to have
classification makes to your business. Employeeyour 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 differencewhether sufficient control exists to establish an
if you inadvertently classify an employeeemployee-employer relationship. If the
incorrectly: your business can be subject to fines,arrangement fails the IRS review, an employer
penalties and back taxes.Employeecan be liable for back withholding, penalties up to
Classifications:Employees: Employers typically have100% of the back taxes, and other statutory
the most control over employees: you determinepayments and penalties on behalf of the now
the hours the employee works, what they do anddesignated employee. If you have questions on
how they do it. Employees normally performwhether an individual is an employee or an
work at the employers location, the employerindependent contractor it is best to err on the
provides the tools, materials, and otherside of employee. It could be cheaper in the long
equipment; they also provide training andrun.Outsourcing: Companies can outsource entire
supervision.Employees can be full time or partdepartments or functions such as shipping, human
time; they can be salaried (exempt from the Fairresources, bookkeeping, customer service,
Labor Standards Act) or non-exempt (hourly andbenefits administration, or computer networking
eligible to earn overtime wages).Employers areto a firm specializing in that field. This can be cost
responsible for withholding federal and state, Socialefficient; the company does not have to invest in
Security and Medicare taxes from employeenew equipment, facilities or additional employees.
wages, as well as matching Social Security andThe outsourcing firm can work side by side within
Medicare taxes. Employees are entitled to certainthe company or can work out of its own facility.
mandated benefits such as Social Security andStandards and expectations are developed and
Medicare, Workers Compensation Insurance andfor a flat fee the outsourcing company handles
unemployment insurance. As the employer youthe work. By outsourcing non-core functions the
have the option to provide other benefits such ascompany can concentrate on its core
healthcare insurance, vacation leave and tuitionbusiness.Hiring StrategyAn important factor to
reimbursement. By providing other benefits yourkeep in mind - you are not limited to one type of
company becomes a more desirable place toworker. By determining your needs, you can
work, but you must be careful and evaluate thedevelop an overall hiring strategy comprised of a
return on your investment and the impact tomix 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 asstaffing needs based on the needs of the
needed basis. They may be hired to complete abusiness. 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 anbe looking for outside money, laying out your
outside staffing agency. Staffing agencies oftenbusiness plan for the next several years, creating
have a selection of candidates immediatelya budget and doing income projections will help
available. For a fee, the staffing agency retainsyou determine your staffing strategy. If the
responsibility for the compensation, payroll taxesthought of all that makes your head spin, your
and benefits for the contingent worker. Thefirst hiring decision may be to retain a
employer has the flexibility to add qualified staffprofessional, an independent contractor to help
with minimal exposure for tax liabilities. There is ayou work through your business plan and hiring
premium attached to this flexibility. The hourlyneeds. You may save significant time and
rates for workers hired through an agency areresources by hiring a consultant to help you with
usually 40% higher than the direct hire rate, butyour business plan and to identify job functions
you, the employer are not responsible forand tasks, skill requirements and qualifications.Once
withholding and other benefits. For short termyou are comfortable with your business direction
needs, this can be the most economicaland budget ask yourself the following questions:1.
solution.Leased Workers: Leased workers differWhat specifically do I need that person or
from temporary or contract workers; they arepersons 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 isgeneral responsibilities of the positionb. Specific
responsible for the financial and administrativeareas of responsibilityc. List of required skillsd.
responsibilities for the employees' salaries andExperience Requirements2. How much time will
benefits; the employer is responsible forthat person need to spend on the required
determining the hours the employee works, whattasks?3. Is this a permanent position or do I need
they do and how they do it. Leased employeesthis person for a specific period of time or for a
work at the employer's location, the employerone time project?4. What equipment do I need to
provides the tools, materials, and otherbuy or lease for this person to come on board?5.
equipment; they also provide training andDo I need to obtain Worker's Compensation
supervision. Because PEOs usually administerInsurance, a Federal Tax ID number, new
benefits and salaries for large numbers offacilities?By answering the above questions and
employees, they are able to offer comparablereviewing the various options open to you, you
wage and benefits packages to employees andare well on the way towards developing a hiring
charge the client company less than they wouldstrategy and deciding who to hire! The next step
normally pay. There are questions regarding "jointin your hiring strategy is to identify recruiting
employer" status with PEOs.Be sure to check withsources. The next article will discuss both
your state regarding unemployment law; intraditional 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 theCPA for the specific legal and tax issues affecting
client company and the client company isyour 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 theBusiness Start-Up, Strategic Planning, and Human
state will apply a directions and control test toResource Services.
determine the employer of record.Independent