Ok leaders, this is your chance to get the HR compliance answer you all need to think about, is this a contractor or an employee?
We get it, flexibility is key in a business. Especially in the last few years, who knows what tomorrow will bring. So you want to be able to flex your headcount up and down easily based on projects, sales, time of year, etc. AND you want to make sure you are compliant when it comes to hiring. Nothing can ruin your day….and your business…like the Department of Labor coming in and questioning how you classify your team (especially when it comes with a big fine and penalty if you have done it wrong).
So let’s talk about how to determine if the role you need is a contractor, a full time employee, a temporary employee, etc…
Quick note about the definitions of all these titles – We are NOT employment lawyers, so this is based on our experiences in hiring, HR policies and compliance. So if you have any questions about classification for a specific role in your organization, please speak to an attorney. But generally, the way to think about different kinds of roles are:
- Employee – This is your traditional W-2 role, whether it is full time or part time. You are dictating their work and their schedule. Unless their schedules allow it, they are focused on your company and only your company. They are on your payroll and benefits (if they work enough hours), are eligible for PTO, get company equipment, etc. They may be salary or hourly (which is a whole other compliance post!) but they are your employee.
- Contractor – This is someone who has a lot more flexibility in the work they do, who they work for, and when they do the work. They may have multiple clients, and even if they have a long-term contract, the work they do is more project based or time-based. They should not receive company equipment (since they may have multiple clients) and they should not directly manage your employees. While there may be an agreement to how they will work on the project (for example, you need them to attend certain meetings) it is not the same dictated timeline as it is with employees. They are paid with an invoice and a 1099, they are not on your payroll.
As long as you classify them correctly, flexible resources can be really helpful (temp employee or a contractor)!
- Short-Term Projects: If you’re facing a surge in work due to a seasonal increase in demand, a special project, or a temporary absence, a flexible resource is ideal. They provide the necessary support and expertise without the long-term commitment of a full-time position.
- Testing the Waters: Before committing to a full-time role, hiring a temp allows you to assess a candidate’s skills and competencies in a real-world setting. This “trial period” minimizes the risk of a poor hiring decision.
- Flexibility and Scalability: Partnering with a temp agency or a platform where you can hire freelancers offer access to a pool of skilled workers, allowing you to quickly adjust your workforce based on fluctuating business needs. This flexibility can be helpful in unstable or unpredictable markets or early stage companies that are still trying to get established.
- Cost-Effectiveness: Flexible resources typically come with lower overhead costs compared to full-time employees, as you avoid expenses like benefits, payroll taxes, and long-term commitments. But don’t make the role temp or a contractor just for this reason because that short term savings will come back to bite you if you classify them incorrectly!
How do you know what is right for your team?
- Thoroughly Analyze Your Needs: Define the specific requirements of the role, including the duration, skillset, level of management (both of their work and the work they are producing for the company) and level of commitment required.
- Consider Your Budget: Evaluate the costs associated with each option, including salaries, benefits, taxes, and agency fees. This alone will not get you to the answer, but it might help you rescope the role if a full time employee is the legal answer but not the one you can fit into your budget.
- Talk to an Expert: Not sure? Reach out to an HR expert who can help you think through what is right for your team and what is best for your business at this stage.
You don’t have to figure it out on your own, but these tips will help you get started. The Shine at Work team has a couple of resources to help you navigate how to classify a role if you need some additional help and insight to find the right person for your team at this stage without getting into trouble later on!