First Person: Contractors vs. Employees

Yahoo Contributor Network

When I describe my web development company I say my staff consists of 35 people but technically, I have only one employee. She handles the administrative needs of my small business and other activities that require daily presence in my office. Everyone else is a contractor or a "1099" worker.

The Need for Independent Contractors

There were several points I took into consideration that led me to this decision about how to staff my company. First of all, my company primarily deals in contracts. When we build a website or provide a marketing campaign for a client, a contract is created with specific definitions and timelines. The nature of the production involved varies, since each one is custom designed to meet the needs of the business owner. This means the volume of production that needs to happen fluctuates on a daily business.

The problem with hiring an in-house person to do the production while the company is growing is that sometimes they would be overwhelmed by the volume of work and other days they would be idle. There is also the issue of additional bookkeeping expenses and payout for Social Security, Medicare and unemployment taxes. These are very costly for a small business just starting out.

What Defines a Contractor?

According to federal and state laws, an independent contractor uses their own workplace and has self-determining tasks to accomplish with defined deliverables and within a finite time period.

This type of worker is perfect for my small business at its current stage of growth. I use several independent contractors and call on them as the need arises. Each one of them is highly qualified in their field of expertise and they handle the details of my business with professionalism. They are aware that their level of income is directly influenced by their ability to manage time quality of work produced.

This is not always the case with employees, since they can easily develop a sense of entitlement. People hired to do a job have an expectation to be paid their wages regardless of how much they produce in a day.

You need to be very careful about how you classify your workers. Microsoft and Time-Warner/AOL were forced to pay large fines due to classifying employees as contractors. The IRS will gladly help you make those distinctions for your small business and its best to contact them to avoid issues in the future.

*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.

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