Published on : 05 November 20186 min reading time
Every time I visit a forum where pet sitting business owners are chatting online one of the most common topics is about the relative merit of hiring employees versus using independent contractors. I know this must also be a concern in other pet businesses. In this post I want to discuss the major differences in these worker classifications and the legal concerns about using contractors.
This post is the third part of my series on hiring help which started with :
1) When is the Right Time to Hire Help?
2) Defining Your Ideal Employee (or Indpendent Contractor)
The major difference between hiring employees and using independent contractors is the amount of control that you will have over the way that their work is performed.
A general rule for contractors is that you can control or direct only the end result of their work and not the means and methods that are used to accomplish the results.
A contractor owns and runs their own business and therefore must handle their own taxes, carry their own insurance, and cannot be made to sign a non-compete agreement as they have the right to contract with several businesses at one time. You can also not give an contractor any job training as it is assumed that they already have the skills required to perform that work.
If you hire employees you must withold income taxes from their pay, and withold and pay Social Security and Medicare taxes on their behalf. At the end of the tax year you need to prepare a W2 form for each employee. You do not deduct taxes from the pay of independent contractors and do not prepare W2 forms. However, you may need to complete Form 1099 for each contractor.
It is vitally important that you know the 20 criteria that the Internal Revenue Service uses to classify if a worker can be considered an employee or independent contractor. Wrongly treating a worker as a contractor can leave you liable for payment of employment taxes.
Here is a summary of the 20 factors:
1. Instructions – Workers who must comply with your instructions as to when, where, and how they work are more likely to be employees than independent contractors.
2. Training – The more training your workers receive from you, the more likely it is that they are employees.
3. Integration – The more important that your workers services are to your business’s success or continuation, the more likely it is that they are employees.
4. Services Rendered Personally – Workers who must personally perform the services for which you’re paying are more likely employees. In contrast, contractors usually have the right to substitute other peoples services for their own to fulfill their contracts.
5. Hiring Assistants – Workers who are not in charge of hiring, supervising, and paying their own assistants are more likely employees.
6. Continuing relationships – Workers who perform work for you for significant periods of time or at recurring intervals are more likely employees.
7. Set hours of work – Workers for whom you establish set hours of work are more likely employees.
8. Full time required – Workers whom you require to work or be available full time are likely to be employees.
9. Work done on premises – Workers who work at your premises or at the place you designate are more likely employees.
10. Order or sequence set – Workers for whom you set the order or sequence in which they perform their services are more likely employees.
11. Reports – Workers whom you require to submit regular reports are more likely employees.
12. Payment Method – Workers whom you pay by the hour, week, or month are more likely employees. Contractors are usually paid by the job.
13. Expenses – Workers whose business and travel expenses you pay are more likely employees.
14. Tools and materials – Workers whose tools, materials, and other equipment you furnish are more likely to be employees.
15. Investment – The greater your workers investment in the facilities and equipment that they use in performing their services the more likely they are to be independent contractors.
16. Profit or loss – The greater the risk that your workers can either make a profit or suffer a loss in rendering their services, the more likely it is that they are independent contractors.
17. Works for more than one person at a time – the more businesses for which your workers perform services at the same time, the more likely it is that they are independent contractors.
18. Services available to general public – Workers who hold their services out to the general public are more likely independent contractors.
19. Right to fire – Workers whom you can fire at any time are more likely employees. In contrast, your right to terminate an independent contractor is generally limited by specific contractual terms.
20. Right to quit – Workers who can quit at any time without incurring liability to you are more likely employees.
Through my research into using contractors and discussions with other business owners who use contractors I have found that it is always your safest bet to have a independent contractor agreement in place. This agreement should spell out very clearly to your workers that they are contractors, and need to file their own taxes, carry their own insurance, and are able to perform work for other businesses.
Nolo has some great ready made contracts for independent contractors that you can find at their website. Make sure you keep a signed copy of the agreement between yourself and your worker on file.
Some of the other tips for using contractors are:
1. Pay contractors a percentage of the fee paid by the customer for each job
2. Allow contractors to bid for available jobs by posting jobs on a notice board or website. This gives contractors complete control over which jobs they select to perform.
3. Require your contractors to submit a weekly or bi-weekly invoice to you for their services. You can make this easy for them by supplying a website form that they can fill out and submit via email.
You should consult with your accountant and legal advisors before making the decision to hire employees or contractors as the rules do vary in each state of the United States and in countries other than the US. Ultimately the decision to use either employees or contractors will depend on how you wish to run and manage your business. Each type of worker can be used effectively to be of benefit to your company and pet business.