Small business owners are often faced with the question of whether to hire people as employees or independent contractors. The answer isn't always cut and dry, as several factors come into play when making a wise decision in this arena. The fact is that hiring someone as an independent contractor when they should be classified as an employee can be quite costly for an organization. This guide should be a helpful tool for you to avoid mistakes when answering this question for yourself.

  • If controlling the way in which a job is done is as important as the end result, hire an employee. When the position can directly reflect positively or negatively on your business, it is probably best to hire an employee. Any one that has direct contact with your customers should absolutely be an employee of your company. When a person is your employee, you have the right to train and assess how they are doing the job you have given them. The use of discipline is also permitted to create whatever behavior you desire. In contrast, when you hire an independent contractor, you will only have control over the end result - and not how they get there.

  • When only the end result is important, hire an independent contractor. If the job you are trying to fill only reflects upon your business by whether it is completed or not, you should probably hire an independent contractor. An independent contractor requires less liability and commitment from you as an employer and ultimately costs less. As long as you are certain that you will not need to control how this person behaves or accomplishes the tasks you assign, this is the way to go.

  • Be sure to classify your hires correctly. Improperly declaring those who work for your business is a fast way to get in trouble with the IRS. Extensive fines and penalties can and will be levied against organizations that are found in violation. If you are unsure of how a hire should be categorized, you can file form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

There are benefits for hiring employees and independent contractors alike. Be sure to assess each job carefully before making a decision. If you are unsure, do not hesitate to get help from the IRS so they can't harm you later.