What Does Your new company have in common with IBM, Exxon and even Disney World? There are certain basic functions that must happen for the business to operate--functions like production, marketing, sales, customer service and administration. You can either do everything yourself, or hire others to help. Solo operations can be very effective and profitable, but if you choose to go the latter route, you'll need a strategy for building the human side of your organization. Your options include the hiring of full- and part-time employees, formal outsourcing, and the use of independent contractors on an ongoing or per-project basis.
Reed Boardman, president of Media Services and Production Group in Orlando, Florida, says that how you provide for personnel depends on what you want to accomplish. "Ask yourself what your objective is," Boardman says. "Do you want someone whose first priority is the success of your company, or do you just need someone to provide a repetitive, routine service?"
Throughout his entrepreneurial career, Boardman has used a combination of employees and independent contractors. Employees, he says, tend to be more loyal and have a stronger interest in building and protecting your company. However, for an employee relationship to work, the commitment must be mutual; you must be willing to invest as much in your employees as you want them to invest in your business.
By contrast, independent contractors working on a per-project basis may be able to turn in a satisfactory performance, although they will usually have other clients to serve as well, and may not share your level of dedication to your business. Even so, this type of outside resource often offers a level of expertise and cost-effectiveness that may be difficult for a small company to achieve in any other way.
Dr. Charles Toftoy, associate professor and director of the Center for the Advancement of Small Business at George Washington University in Washington, DC, says that before you choose between employees and independent contractors, you need a clear idea of what you're looking for. Consider these aspects of each task:
- How much actual work is involved?
- What skills does the job require?
- Is the job an ongoing process or a short-term project?
- What is your budget?
- How much creativity and commitment do you expect from the person performing the task?
- What degree of control and supervision do you want over the job?
Then match your answers to your options, and begin your search for the resource that is most appropriate for your situation.
Before You Hire
Whether you are hiring employees or outsourcing to an independent contractor, the selection process is similar: interview several candidates; determine if they have the skills and resources to meet your particular needs; find out if they will be compatible with your working style and environment; and check references. Give yourself adequate time to conduct a search; don't wait until you are desperate before you start looking for help.
If you hire employees, you must be prepared to: withhold payroll taxes and transmit those funds to the appropriate government entity; provide whatever insurance, such as workers' compensation, that may be required by law; and follow other state and federal mandates. In addition, most full-time workers expect a certain amount of benefits, such as paid holidays, vacations, medical and other insurance coverage and retirement benefits. You can handle these issues yourself, or outsource them to a payroll service, a human resources consultant, or an employee-leasing company.
If you're not completely comfortable with the idea of hiring full-time employees, consider part-timers. You'll reduce some of your employment-related costs, because they typically don't look for benefits, and you'll gain some practice and experience in being an employer. To fill short-term positions, try to find MBA students or other interns from a nearby college or university.
You may choose to avoid the burdens of being an employer by hiring independent contractors exclusively, but this approach is not risk-free. The IRS aggressively enforces its rules for classifying workers, and if an audit determines you have been incorrectly classifying employees as independent contractors, you may be held liable for unpaid taxes, interest and penalties--possibly a substantial sum of money.
You're more likely to encounter this type of problem with independent contractors when you are using self-employed individuals; retaining a company generally offers more protection against the independent-contractor classification question.
Toftoy suggests drafting a short contract which stipulates either the terms of employment or the agreement with the independent contractor. This is especially important when employees and contractors have access to confidential information.
However you decide to handle the issue of staffing, be sure your own time is put to your best advantage. "The key is to look for ways to be more efficient and, therefore, more profitable," explains Boardman. "Focus your energies on developing new business and reducing costs, and let your team handle the routine, day-to-day work."
Any Small Business Development Center can help you navigate the hiring process. For the one nearest you, contact the U. S. Small Business Administration, 800-UASK-SBA.
Hiring Independent Contractors: The Employer's Legal Guide, by Stephen Fishman (Nolo Press, $29.95, 800-992-6656). Forms included on DOS disc.