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Growing Your Team: Employee vs. Contractor [Gladiator Series]

By September 19, 2014 October 29th, 2015 Business 101, CEO Mindset, Team Building

Growing Your Team: Employee vs. Contractor

So far we looked at finding and hiring Gladiators and then securing the on-boarding process that focused on team and strengths. Now it’s time to take a look at the physical make-up of the team – employee or subcontractor or both.

The make-up of the team has to do with the physical space available, the responsibilities being performed, and if the other party is a business or not. So what’s the difference?

Employee

Business owners provide employees with their tools – equipment, software, subscriptions, training, certifications, supplies, etc. Employer will also pay ½ self-employment tax (or social security) and unemployment tax (FYI an overlooked employee benefit). The focus on when is someone an employee has to do more with the control of the activity and how it is delivered rather than if they are physically sharing space with the owner.

Subcontractor

Is self-employed and has an active business presence – website, business cards, more than one client, has a possible business license (when applicable) and actively seeks new business opportunities. Added bonus points for having a federal ID number and had taken the time to set-up a business tax entity like an LLC or S-Corp. Subcontractors supply all of their tools, training/certifications and supplies. If there is a supply that is specific to providing services to their client it may be billable or included in pricing. Key to working with subcontractors is they normally come to you with specific solution or expertise, or plug-n-play services. Warning, those subcontractors that only have one client and are sole proprietors can easily be confused as an employee.

When to use one or the other or both?

To bring the conversation back to security, does it matter which one we use to expand our team? If we look at hiring Gladiators that work in their strengths – it doesn’t matter which type our team member is. What will come up will be how much control over the work do we ultimately need for security purposes? How will they access and use the data – that will be saved when we look at tools next. We already established that the most important thing when looking at security is the culture and the “who” behind the hire. Two things to consider about security – the employee will look to the employer to provide and train on it and the consultant may come to the party with their own interpretation of it. A consultant may or may not adjust to your security protocol. Which is a conversation that will be required before contracting with them.

Contracts Required, Regardless of the Type

Both types of team members will require a contact and this agreement of accountability will outline what you expect, how you expect it and what the measurable outcomes will be.

When not to use both?

You can’t use both types for the same duties. In our case, I couldn’t outsource A/P processing to a contractor AND have a paid employee doing the same work with the same responsibility and decision-making opportunities. I could however, have an employee do A/P and a subcontractor do G/L. Different roles and responsibilities = different type of team members.

Which one is right for YOU?

Do you know which one will work best for your team of Gladiators?  Most companies will use a blended system. At times you’ll just want the activity or project completed so you’ll hire experienced consultants. For consistent recurring services you may create your team with a little of both. If you have less than 10 clients it would be easier to plug and play with consultants to help leverage your time. If you have more than 30, perhaps its time to invest your time in documenting processes and hiring employees that can run the day-to-day activities for the business. Or when you open up commercial space, good opportunity for employees. Again, whatever option will depend on how much control you the business owner want to have over the activity and end results. Full control = employees; hiring an expert to just do it = consultant/subcontractor

Whatever you choose, the key to a strong security is written contract and agreement for all team members, regardless of the type.

Suggested Next Steps:

  1. Company culture and expectations – how will your team show up and what is the bare minimum of what is expected. It can also be a mission statement or company values. Whatever it is, display it proudly and definitely part of the hiring and screening process.
  2. Team roles, descriptions and org chart – define how your team will connect with each other and what they are responsible for. This will help you get clear on the role and not the person. One person may do several roles, but each role can be replaced or hired for.
  3. Standard Operating Procedure (SOP) or written processes – how will the work be done? Rough draft and checklists to start – GREAT! Start somewhere and your team can fill in the rest. Must be accessible by all team members and easy to update. Our post here will give you more info.
  4. Contract and agreements – depending on the contract and the state you live in, having an attorney review or even create a contract on your behalf is well worth the investment. Having remote team members requires paying attention to not only your state but the state of the future team member and what the rules and regulations may be for employee vs. contractor.
  5. Review and Decide – now that you have clarity around this subject who will be the best fit for the role?
  6. Create your hiring process – job description, experience needs, expectations, contractor checklist, compensation, and appropriate hiring forms.

Now get out there and hire your team of Gladiators!!

Additional Resources:

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

http://www.sba.gov/content/hire-contractor-or-employee

http://www.paychex.com/a/d/accounting/1099-employee-vs-independent-contractor.pdf

http://blog.time4payroll.com/2011/08/employee-or-independent-contractor/

http://www.forbes.com/sites/robertwood/2012/05/09/irs-provides-template-for-employee-vs-contractor-mess/

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