Misclassifying Employees as Independent Contractors ... One of the Most Expensive Mistakes of Them All! Part 1Written by Elena Fawkner
The time comes for every successful home-based business owner when one person can no longer do it all. In early days of your fledgling business you accepted that not only were you CEO, CFO, COO, secretary, treasurer and marketing director, you also had to be laborer, receptionist, janitor, chief cook and bottlewasher. That is simply what you have to do when starting out. In fact, I'll bet you worked harder in your "little home business" than you ever did in your former life as corporate whatever, right? But now time has come. You have successfully taken your business past initial, maddeningly slow, frustrating start-up phase to point where you're seeing some growth ... so much growth in fact that you're finding it near impossible to keep all balls in air.
The time has come to hire some help. OK, but what kind of help do you need? If it's a secretary/receptionist, that's easy. You go out and hire yourself a competent employee. But what if it's someone to carry out specific projects such as designing a website for a good customer you just can't service within timeframe customer needs? What if it's someone to create a marketing program to launch your business to masses? What if it's a bookkeeper to handle your accounts payable, receivable and everything else in between? The difference between these types of activities and our secretary/receptionist example is that former are all specific projects whereas latter is not.
When considering whom to hire for your project work, you have a choice ... hire a full-time or part-time employee or hire an independent contractor. By time you include all add-on costs of hiring an employee (in addition to wages or salary you need to add on federal and state payroll taxes, social security tax, federal unemployment insurance tax, state unemployment insurance, workers' comp premiums and employee benefits, not to mention shelling out for office space and equipment), hiring an employee becomes a relatively expensive option compared to hiring an independent contractor to do same work. The add-on costs of hiring an employee usually add about 30-40% to bill. In other words, if you pay your employee $10 an hour, you'll really be paying $13 - $14 an hour once you include all add-on expenses.
In contrast, although you usually pay an independent contractor more than an employee, that cost will still be less than an employee with add-on expenses. You may pay an independent contractor $12 an hour without any additional charges. Sound good? Well, read on. It's not as easy as it looks.
WHAT IS AN INDEPENDENT CONTRACTOR?
So, what is difference between an employee and an independent contractor anyway? Quite simply, an independent contractor is someone who contracts with someone else to provide specified services for a set price on terms and conditions outlined in contract.
For example, let's say you hire a gardener to mow your lawn and get rid of weeds once a week. Your contract (whether written or not) is that Joe Gardener will arrive at your house on Friday morning, mow your lawn, get rid of weeds and generally tend to your garden. In exchange, you agree to pay Joe $40 for this service each week. Joe supplies his own lawnmower, hedge clippers and weeding tools. Joe decides what time he arrives and how long job takes (within reasonable parameters). You do not supervise Joe in his tasks or dictate to him how they are to be done. Joe is an independent businessperson and you treat him accordingly. The final product is either to your satisfaction or it isn't. When he's finished, you pay him if you're satisfied with end result and you don't pay him if you're not.
Contrast this with an employer/employee situation. Let's say you own business Joe's Gardening Service. You employ three employee gardeners to perform services for your business. As gardeners' employer, you pay them a fixed wage and you withhold taxes, unemployment insurance and various other benefits from their wages to remit to appropriate government agencies. In addition, you provide your employees with tools and equipment they need to perform their work. You tell them what to do and supervise them while they're doing it. At end of job they get paid by you whether your customer is satisfied with job or not. In other words, although your customer may not pay you (the independent contractor) because she is dissatisfied with work performed by your employees, you must still pay your employees because they are not independent contractors - they are your employees and are entitled to be paid a fixed wage. If you are dissatisfied with their work, you can fire them but you can't decide whether to pay or withhold their wages based on end result of particular project.
Am I Normal?Written by Jackie Ulmer
It's 3:00AM and instead of sleeping, I'm trying to figure out how to get listed near top of search engines. Am I normal?
Am I normal? I pondered that question this morning while I quickly checked email one last time before shuffling kids in car and off to school.
Am I normal? It crossed my mind again while racing back toward my home office as I watched a group of moms head to bagel shop for coffee and a chat.
Am I normal? This afternoon, as my neighbors talked intensely about latest episode of ER, my mind kept wandering back to my web site, and I wondered if that was normal.
My mother tells me I should quit thinking about business so much and just enjoy my children, which I do, but I still wonder, am I normal?
Am I normal? My friends look at me as if they've seen an alien when I tell them that I'm never going back to my corporate marketing career. I'm building an Internet empire from my home, would they like one too?
Now, don't get me wrong. I love life and live it to fullest, with lots of playtime. But, ambition and challenge of "building perfect beast" push me relentlessly sometimes. I figure you can relate if you are reading this article. You are looking to create something bigger than yourself, too!
But, it's a crazy world we live in. A world where people have learned to stifle their dreams, their desires, their creativity. We are taught to "settle" for what we are dealt in life. All too often, when we try to move beyond that, those closest to us try to hold us back, save us from ourselves.
"Consider yourself lucky for what you have."
"It's a good job and benefits are great."
"The average American family has thousands of dollars in credit card debt."
"It's too risky."
I don't know how you feel, but I want to LIVE my dreams, have my heart's desires and allow my creativity to blossom. I want to be my own boss, work in my PJ's if I choose, take a four hour lunch to go shopping and fire myself when I'm not measuring up. (Of course, I'm eligible for rehire tomorrow!)