This week in the Freedom Friday blog and email newsletter, we're continuing the series 10 Steps to Take Your Small Business to the Next Level. Today we're going to cover the seventh step in taking your small business to the next level, and that is employment and hiring practices.
Many times when a small business is growing, you might consider hiring an independent contractor, or one or two employees to assist in your small business. The Internal Revenue Service (IRS) requires you as a small business owner to properly classify any people who work for your small business as an independent contract or an employee. If you have employees, then you need to ensure they are classified as exempt or non-exempt, which determines your obligation to pay them overtime. By the way, there is no such thing as a “1099 employee.” A worker is either an independent contractor who receives a 1099 tax form, or an employee who receives W-2 tax form. So, how do you determine if someone is an independent contractor or employee? Here are six (6) factors to help you determine if a worker is an independent contract or an employee:
1. Tools, Materials & Equipment
The first factor you should consider in deciding if someone is an employee or an independent contractor is the tools, materials, and equipment. An independent contractor will typically provide his own tools, materials, and equipment. However, an employee might use the equipment provided by the business, or alternatively would be reimbursed by the business for purchasing his equipment. A business may make available to an independent contractor some tools, materials, and equipment, but if your new hire is required to only use the tools, materials, and equipment provided by you, then the new hire is probably an employee.
2. How and When the Work is Done
The second factor you should consider in deciding if someone is an employee or an independent contractor is how and when the work is done. An independent contractor is generally free as to how and when he gets the work done. There may be an agreement as to a deadline for a project to be completed, but an independent contractor should be in control of when he works, where he works, and how he completes his work. Someone who is required to work certain hours, at a specific location, or work on a task in a specific manner is probably an employee.
The third factor you should consider in deciding if someone is an employee or an independent contractor is training. The business should not need to train an independent contractor in order to complete a job.
4. Providing Services to Others
The fourth factor you should consider is whether the worker can provide his services to others. Independent contractors can provide their services to others, e.g. more than one person or business. However, employees typically are restricted to perform one kind of work to a specific employer.
The fifth factor you should consider is invoicing. Independent contractors should submit invoices to the business in order to receive payment for their services, instead of receiving a regular salary or wage for tracked time. An employee often will need to submit their time or work hours in order to be paid by their employer.
6. Permanent and Dependent
Lastly, the sixth factor you should consider is whether the worker is permanent and dependent. Generally, independent contractors are hired for specific projects, rather than for an indefinite period of time. Also, an employee is usually dependent on the business as their sole source of income. However, an independent contractor should provide his services to more than one person or business, and therefore is not as dependent on the business for his livelihood.
It is also a good idea to have an attorney prepare or review any independent contractor agreements, employment agreements, and/or policies and procedures manuals which you may need or already have in place.
If you are interested in starting a small business anywhere in Oklahoma, or you are interested in taking your small business to the next level, please contact me at [email protected] to schedule a FREE strategy session.
For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/