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Employees or Contractors: Which Should a Business Hire?

Busy season has arrived and with it comes longer days and increased workloads. As we clients prepare for tax season, it’s imperative that you take the time to assess your needs to navigate through the season.

Start by evaluating what your clients need. Once you have a good idea of what’s going to be required of you, you can then determine if you have the right resources available. Are you fully equipped and staffed to handle your clients’ needs during the busy season? If not you may consider reducing your client list or ramping up your staff.

Before you hire additional staff, there are a few things to consider. Is this a short-term or long-term need? Can you meet clients’ needs by having current staff members work longer hours? Do you plan to keep additional staff after the busy season? What does your budget allow for?

Once the decision has been made to hire additional workers, it’s time to decide if they will be contractors or employees. There are pros and cons to both, as well as tax implications that need to be considered. If your clients need services that your firm doesn’t typically provide, hiring a contractor that specializes in that area could enhance your service offering without adding too much of an additional cost. However, there may situations where it’s more cost-effective and efficient for your clients to hire the third party directly.

Outlined below are a few of the differences between employees and contractors and things payroll practitioners should consider before deciding.

Contractors:

  • •Operate under their own business name
  • •Advertise their business’ services
  • •Invoice for work completed
  • •May work for more than one client at a time
  • •Provide own business tools and resources
  • •Set own hours
  • •Keep business records
  • •Have reduced labor costs and liability
  • •Provide flexibility in hiring and firing
  • •Usually have a pre-determined work length
  • •Must complete a W-9
  • •Must receive a 1099-MISC for any payment in excess of $600

 Employees:

  • •Perform work assigned by others
  • •Work for only one employer
  • •Must be provided employee benefits
  • •Require employers withhold state, federal income, Social Security, Medicare and unemployment taxes
  • •Have no set employment end date
  • •Must receive a W-2 form

 Classifying someone as a contractor when they qualify as an employee can have serious tax implications. You’ll be liable for paying employment taxes and face penalties as well. Therefore, it’s important that their work conditions and workload match their classification.

The best way to determine what a good fit is for your firm is to access your clients and the work that each requires. Make a decision based on the perceived longevity of the additional workload, as well as which services are needed.

 

About 

Gustavo A Viera is the managing partner of Gustavo A Viera, PA. His experience spans more than 25 years. He started his career in public accounting at PriceWaterHouseCoopers where reached the level senior audit manager. His Fortune 500 experience includes positions as CFO – Latin America Region for both Hewlett Packard and Telefonica of Spain. Gustavo also writes a blog twice a week that addresses trending accounting and tax issues. He is an SBA Advisor and teaches workshops for aspiring entrepreneurs. His office is located at One Alhambra Plaza Floor PH Coral Gables FL 33134, and is admitted to practice in the State of Florida as a licensed Certified Public Accountant. Gus welcomes questions and he can be reached at 786-250-4450.

About the Author

Gustavo VieraGustavo A Viera is the managing partner of Gustavo A Viera, PA. His experience spans more than 25 years. He started his career in public accounting at PriceWaterHouseCoopers where reached the level senior audit manager. His Fortune 500 experience includes positions as CFO - Latin America Region for both Hewlett Packard and Telefonica of Spain. Gustavo also writes a blog twice a week that addresses trending accounting and tax issues. He is an SBA Advisor and teaches workshops for aspiring entrepreneurs. His office is located at One Alhambra Plaza Floor PH Coral Gables FL 33134, and is admitted to practice in the State of Florida as a licensed Certified Public Accountant. Gus welcomes questions and he can be reached at 786-250-4450.View all posts by Gustavo Viera →

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