So your business is turning a profit and clients are pouring in. In fact there’s so much work you can’t handle it all on your own. Sounds like it’s time to expand; but what if your business flow isn’t always consistent, and hiring a full or even part time employee isn’t feasible? Well, hiring an independent contractor may be just what you need to safely grow your business and keep the ball rolling.
An independent contractor is exactly what it sounds like. They work (and are paid) on a job-by-job basis, providing that extra staff power just when you need it. There are many advantages to hiring independent contractors, but also important differences to be aware of.
Unlike employees, independent contractors don’t receive benefits, nor are any of their wages withheld for tax purposes. This is a huge load off a small business owner in terms of both money and paperwork. That’s right, no office politics, no ballooning overhead costs, no lack of productivity waiting around for work; no nonsense.
In making a contractor hire, you’ll be required to file a 1099 form with the IRS for tax purposes if you pay them more than $600 a year.
As a professional photographer I am on both sides of the fence. I work as a contractor for a large wedding photography studio, and recently made my first independent contract hire myself to grow my own operation. The entire experience has been extremely rewarding thus far.
However, in growing your business through independent contractor hires there are several important distinctions you need to adhere to says Diana Chung, CPA.
“Independent contractors generally have multiple customers, have the ability to realize a profit or loss, own their own tools or equipment, bill for jobs completed and have control over how a job is completed,” Chung says. On the other hand, employees often have tools provided to them, are subject to more control and earn hourly wages.
As a business owner, it’s important not to overstep your boundaries with a contractor. The IRS is very specific in keeping them separate from full-fledged employees. Erring in this can result in fines and other penalties if you’re audited. The IRS provides a clear list of these differences here: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
“In my opinion, being informed about employee vs. independent contractor status is a very important topic and should be considered carefully before hiring an individual. A wrong treatment of an individual can be a headache in the best of circumstances, and can put someone out of business in the worst of cases,” Chung says.
Basically, a hired contractor is not your own personal minion, respect them as the captain of their own ship (since they are) and don’t micromanage. They know what they’re doing, that’s why you hired them right?
It’s prudent to do your homework before opting to hire out Chung says; consult with a financial professional if there are any hanging questions. For me, it’s not just about choosing the right person to hire; it’s about building that relationship upon a solid contract before the work even starts. The contractor is happy, you are happy and there are no lingering doubts or gray areas.
As a contract worker, I have loved the autonomy and trust placed in me. It’s not just work, it’s been a great opportunity to hone my skills. Now, hiring a contractor has proven the most economical option to expand my small business. Even in tough economic times I’m excited at the prospect of growth, and this is the best way to do so while protecting myself from the risks of reckless expansion.