One of the most exciting times in the life cycle of a small business is when business is growing to the point that you need to hire some help. There are a lot of factors to consider when hiring workers – whether full-time or part-time. And one question that comes up a lot is whether you should hire new workers as employees or independent contractors.

Here are some points to consider before making your decision:

Hiring Independent Contractors Saves Time and Money

Why do some business owners choose to hire independent contractors instead of employees? There are two main reasons:

To save time
To save money

Hiring employees for your business is a big investment. It costs a lot of money to hire and train them. You have to calculate and set aside money for their taxes, for social security, for medicare and for unemployment.

In some states, you also need to provide them with medical insurance coverage. You also have to cover them if they get injured on the job.

All of that adds up. Not only are there the direct costs mentioned, but you also usually have to hire a human resources staff just to calculate, track and manage all of that.

So for a small business that doesn’t need a ton of people in order to operate, it often makes sense to just hire contractors – especially for handling activities that fall outside the main function of your company (e.g. bookkeeping, janitorial work, website and social media management).

Hiring Workers as Employees Is Sometimes Legally Required

If hiring employees is so expensive and complicated, why not hire all your workers as contractors? That sounds pretty logical, especially for a small company with a tight operating budget. But you don’t always have a choice. Some workers must be hired as employees and given all the rights and protections that employees are entitled to receive.

According the the U.S. Internal Revenue Service (IRS), a Worker is Considered an Employee if:

The employer controls when and how the work is to be performed
The worker works full-time for the company and is prohibited from or is unable to work for other companies in the industry
The worker is performing the key activity of the business

If you want your workers on the clock full-time, according to a work schedule that you control, performing the main functions of your business in the exact manner in which you tell them to do the work – then they should be classified as employees. They should be on payroll, with deductions withheld for taxes, social security and medicare.

If you are a sole proprietor and your company is growing to the point that you need to hire some additional workers, contact BT84 Commercial Capital & Business Solutions to see how financing some aspects of your business can help you shoulder the additional costs of hiring and training new employees and adding them to your payroll.