1/6/2024 0 Comments W2 contractor expensesYou could build relationships with independent contractors who specialize in a subset of your overall service portfolio for assistance on larger projects. ![]() Contractors aren’t just cheap labor sources they’re specialists that should be brought in for specific tasks that don’t need the same oversight that an employee would.For service businesses, this might mean sub-contracting work out to smaller businesses that operate in your same market when demand increases or bringing in a certified expert from another city to help you train and improve the efficiency of your existing workforce. Contractors and specialists exist in almost every field, which means that with a bit of advance research, the right networking, and clearly written contracts that follow the rules of contract work, it’s entirely possible to scale your workforce the right way.Most examples of improper contract work arise from either excessive money-saving attempts or an improper understanding of the difference between contract work and part-time work. Generally speaking, though, contractors aren’t going to be working on-site using your equipment if they are, you may be misclassifying a part-time employee.Outsourcing labor is common, and small businesses are turning to contractors for help with increasing frequency. You might work with a contractor for tax services or payroll or even staff training, depending on the scale of your operations. If you paid someone to design your website, create posters, or run an advertising campaign, you’ve worked with contractors the right way: on a limited-scope project with an explicit contract and a deadline, or on a retainer for recurring remote services without direct oversight.Contractors aren’t staff, they’re experts. How to Use Contractors ProperlyĬhances are, you’ve already worked with a contractor or two. If you’re deliberately misclassifying employees in order to save a buck or two, you’re going to have a bad time. If everyone is on the same page, it can work out fairly well. The substance of the relationship, not the label, governs the worker’s status.” This means that the relationship is largely determined by how it’s perceived by everyone involved. To quote the IRS: “If you have an employer-employee relationship, it makes no difference how it is labeled. If you split the difference… Well, it’s murky. But if all you do is connect the cleaners with clients and leave the rest up to them, they’re contractors. They’re given specific directions on how to clean, but they’re not directly monitored or micro-managed by you or other core members.Are they employees, or contractors? Would that change if they brought their own cleaning supplies? What if they drove company vehicles? What if they set their own schedules?If they work in teams, drive company vehicles, and/or don’t have control over their own schedules, they’re employees. Your staff drive their own vehicles to each location, but they use supplies and wear uniforms your provide. They control when, where, and how they work, and they’ll treat you as a client instead of a boss.This sounds simple on paper, but it gets tricky, though when you break it down into real-world examples. Independent contractors, on the other hand, are their own business. That’s classified as behavior control, which the IRS takes into account when looking at employee classifications. The general rule is that the way someone works dictates their employment status, but it can also be influenced by scheduling, provided equipment, and the specific job sector they work in.In simple terms, if you tell an individual when, where, and how to work, they’re probably an employee. It’s relatively easy to figure out whether someone is a contractor or an employee in an office setting, but the lines aren’t as clear for service businesses. They can help you scale to meet temporary work demands, provide specialized services you can’t train for in-house, and give you valuable 3rd party support when working on projects that don’t match your specific wheelhouse.If you’re starting a new service business or you’re looking to diversify your current workforce with more position types (there are actually seven employment classes in the US), this guide will help you figure out what kind of employment system is best for your business. ![]() Misclassifying your employees could cost you thousands in penalties and FICA back-taxes.In some situations, though, you really do need an independent contractor, and as long as their duties fit the description, contractors are a great resource for small businesses. It’s tempting as a small business owner to reduce your payroll expenses and tax liabilities as much as possible, but employee misclassification is a serious crime. The difference between a contractor and an employee isn’t negligible.
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