Are you a small business that needs a little extra help here and there? Beware of how you hire any help in the form of time, labor, or creativity. There are both federal and state rules that you must follow when paying money to others when it benefits your business.
Hiring an employee means you put them on your company payroll. However, this is where small business employers can get into a lot of trouble if they don’t follow tax laws.
Full-time employees are usually those who work 35-40 hours per week. Any more than 40 hours in one week, and you must pay overtime at 1.5 times the regular rate. Depending on your state, you are probably required to pay state unemployment taxes for each employee. Also, check with your state laws about whether you are required to provide certain benefits, such as medical insurance.
However, what if you have an employee that only works occasionally as needed? Or if you pay your college-age niece for working during spring break or summer? You must be careful in how you classify your employees. If they are on your books as an hourly or salaried employee, you will be required to pay federal FICA taxes and possibly state unemployment. If you want to avoid these issues for occasional work, you might consider the following alternatives.
You could hire part-time or occasional help through temp agencies. These companies take great care to filter and certify their workers to provide clients with the best help possible. Better yet, they will take care of all employee taxes. You simply pay the agency a fee for each hour their employee works for your business.
Independent Contractors and Freelancers
You could determine to hire a contractor or freelancer to perform necessary duties. A good example is an outside bookkeeping service or a freelance writer. You simply contract them through an agreement to perform specific duties or tasks and then pay them for their services as an outside contractor. If you do this, however, note than any monies paid over $600 to any contractor will need to be reported to the IRS on a 1099 form.
Hiring extra help once in a while can be a pain, but if done strategically and according to employment laws, you can save considerable money on employee taxes and potential penalties.