Quiz: Hire an Employee or a Contractor?
You know that it’s time to hire, but you’re faced with this question: 1099 independent contractor or a W-2 employee? Before you make your decision, it’s important to understand the differences between a contractor and an employee.
Misclassifying a worker can have costly consequences. To help determine whether an employee or a contractor is best for you, take the quiz below. You’ll find answers and explanations in the key following the questions.
1) What level of supervision is needed to complete the task or project at hand?
A) a great deal
B) some oversight
C) very little
2) How critical to your core business operations is the task or project?
A) crucial to operations
B) somewhat important
C) not very significant
3) Where do cost considerations align with payroll and ease-of-termination considerations?
A) they rank highly
B) not sure
C) not much of an issue for us
4) Who will be involved with, directly or indirectly, the role and responsibilities?
A) essential personnel
B) a variety of workers
C) non-essential employees
If you answered “A,” chances are you want to hire an employee. An employee gives you the opportunity to train as you see fit for the task or project, and to fully guide and oversee their work.
If you answered “B,” you’ll need to weigh other factors (see questions 2-4). Keep in mind that with a contractor, you can designate duties and a deadline, but contractors hold some sovereignty on their work process. Further, they can often set their own work hours.
If you answered “C,” a contractor may be the right choice for you. You can simply assign the work and a deadline for its completion and let the contractor take it from there.
If you answered “A,” you likely will want to hire an employee for the work. You need someone you can depend on to completely understand the details and nuances of the tasks involved, because your core business operations rely on comprehensive knowledge.
If you answered “B,” you want to take the whole of this quiz before deciding. An employee may be your answer if quality control is paramount to the task or project. A contractor may be your answer if greater efficiency outweighs your need for consistency in how a task is completed.
If you answered “C,” you may want to hire a contractor. The work isn’t especially essential to your core business operations and can be completed by someone with a more general work background. Perhaps the project is short-term or the task is secondary to your core business.
If you answered “A,” perhaps hiring an employee makes sense for your situation. Contractors are often more costly per hour, and you need to comply with the IRS Guidelines for Independent Contractors (in addition, be sure the contract you’re using clearly delineates termination procedures). Keep in mind that if you intervene in a contractor’s work, you may be treating them as an employee – overstepping legal boundaries.
If you answered “B,” use the other questions in this quiz to help you make your overall decision. Consider any variables – might you be facing layoffs because of work shortages or fluctuating workloads? Would a contractor bring specialized skills that eliminate the cost and time of training them for the work? Would it be helpful to have a low-risk option to measure the workload to see if you can justify adding another employee? Are you facing a time crunch for a task to be completed (is this task holding up another)?
If you answered “C,” know that hiring an employee brings numerous costs, including overtime, payroll tax, FICA, unemployment and worker’s compensation insurance. These expenses can easily increase your payroll costs by at least 20 to 30 percent. Another issue to consider is the legal and regulatory ramifications entailed in firing employees. A contractor may be your answer.
If you answered “A,” the notion of a “team player” may carry more import in your situation. You need someone who is a better fit for your business environment and corporate culture. The onboarding process may require a defined scope of work that demands myriad details and complex processes, which makes an employee a more sensible choice.
If you answered “B,” look at the other questions in this quiz to help make the best choice. Depending on your circumstances, the size of your work force and other variables, you may want to consider such factors as how much specialized expertise is needed for the job, the amount of training required, and the general atmosphere of camaraderie in your workforce.
If you answered “C,” you may want to take into account how a fresh, unbiased perspective could provide key insights into the nature of the role and its various responsibilities. Specifically, a contractor – by nature of not being officially affiliated with your company and therefore less invested – can give you the honest feedback employees may not feel comfortable sharing.
If you’re still unsure which option is right for you (or to avoid the risk of misclassification), consider partnering with a staffing agency. The agency recruits, screens, and hires people on your behalf. Because the contractors become employees of the agency, not your company, they are responsible for various employee costs, including payroll and unemployment tax, health insurance, and any additional employee benefits.
Hiring is always a big decision. You have options. You can hire someone first as a contractor for an initial short-term project, and then hire as an employee if the fit is right. Generally speaking, a contractor offers you simplicity and independence, while an employee brings you quality control and reliability.