An Overview of the Advantages or Disadvantages of Hiring an Employee versus an Independent Contractor

If your business is expanding and you need to hire help, then you have a good problem!  Your next decision should be whether you should hire your new workers as employees or independent contractors.

Generally, bringing on new workers as employees is more expensive and time consuming for the employer; and bringing workers on as independent contractors is easier but poses some risks for your business.

One of the first things you should know is that regardless of whether you hire someone as an employee or independent contractor, the courts in Ohio and the IRS will look at how they are treated rather than what the paperwork says in coming to their own determination of whether the worker is an employee or independent contractor.  The IRS uses the following test, and you should also use this test in order to determine whether it makes sense for you to hire workers as employees or independent contractors.

The attorneys at Harris & Engler can help your business with its employment and expansion issues.  The law firm of Harris & Engler is located in Columbus Ohio, and its attorneys help businesses get properly set up for expansion, whether through hiring independent contractors or employees.  Call an attorney at Harris & Engler today by calling (614) 610-9988.

How to Choose Between Hiring an Employee or Independent Contractor

1. Behavioral Control
   • Will you direct and control how the work is done?
2. Financial Control
   • Are the business aspects of the worker's job controlled by the employer?  (including things like how the worker is paid (weekly v. completion of job), whether expenses are reimbursed, who provides the tools/supplies, etc.)
3. Type of Relationship
   • Are there written contracts or employee-type benefits?  Will the relationship continue and is the work performed a key aspect of the business?

Yes answers to the above questions all indicate that the worker is an employee.  The law in Ohio focuses on what is actually happening in the relationship between the employer and employee or independent contractor - even if a worker is designated as an Independent Contractor on paper.

The Risk of Bringing Workers on As Independent Contractors

If you bring on new workers as independent contractors, you essentially cannot tell them how to do the work (no quality control), because then it would make them appear as employees under the law, and then if they're employees then you should be paying withholding taxes.

With independent contractors, the big risk, depending on the industry, is that the contractor would steal any new business opportunities for themselves, which they are entitled to do.  With employees, you can have them sign non-compete agreements, with independent contractors you generally cannot.

The Costs of Hiring Employees

The costs are certainly going to be greater in hiring employees rather than independent contractors, but in many circumstances it is well worth it.

You should generally hire as an independent contractor if you need help with completing certain jobs and do not foresee the relationship lasting beyond that.  With employees, you need to be able to guarantee them a minimum number of hours to work per week.  Employees will also generally expect benefits such as health care, vacation and sick time.  

There are also numerous State registration and insurance requirements that you must abide by in order to bring on new employees.  You can read about these requirements here.  

If Your Business is Ready to Expand, and You Need Help Navigating the Laws in Ohio, Contact Harris & Engler

The attorneys at Harris & Engler are here to guide you through the process of getting set up to hire employees or comply with the tax reporting requirements of independent contractors.  Contact an attorney by calling (614) 610-9988.