Hiring a Freelancer or from a Staffing Company? Here’s What You Need to Know
Freelancers. Independent Contractors. Temporary Workers. However you want to call them, there’s no stopping the rise of online independent service providers. Virtual staffing involves a mutually beneficial relationship that gives both business owner and virtual worker plenty of freedom and a host of other benefits.
But before you start the lengthy process of hiring a virtual assistant, you must first be aware of the important issues surrounding the industry. For instance, what classifies a person as an independent contractor? Why should you be concerned about the differences between getting a temporary worker as an employee or as an independent contractor? What benefits can you get from recognizing this distinction?
There are laws governing how you classify the people who work for you. A business cannot just hire anyone for a short-term need and let them go after the job is done. Likewise, a company cannot enlist someone as a temporary worker and keep them on for an extensive period.
Dealing with IRS and the US Department of Labor
The Internal Revenue Service (IRS) has started a crackdown on 6,000 businesses for employee misclassification. Being audited is a daunting incident even for companies who usually follow rules by the book. You wouldn’t want to risk your credibility and pay penalties because of misclassification.
IRS and the US Department of Labor’s scrutiny over companies that misclassify employees has continued for several years. This means that the government conducts random audits on companies based on several factors ranging from a company’s filed IRS documents to complaints of disgruntled employees.
Although there are businesses who knowingly misclassify people as independent contractors to cut expenses, some commit classification errors unintentionally. Note that just because an applicant says they’re a freelancer or independent contractor doesn’t automatically make them one. The IRS website offers in-depth information about hiring freelancers.
It includes the following:
- A concise definition of an independent contractor
- A brochure explaining the difference between independent contractors and employees (Available in English and Spanish)
- Conditions of independent contractor payments, including the correct forms to use (1099-MISC forms) and general instructions for filling out forms
To avoid getting in trouble with the IRS, assess your compliance knowledge if you ever need to hire temporary help for your business.
Check out these two scenarios that call for hiring and recruiting temporary service providers:
After years of marketing efforts and consistent quality customer service, your online store has finally gained a strong following. You’re gearing up for large volumes of orders for the last quarter of the year as you prepare for Halloween, Thanksgiving, and Christmas season sales. You need additional eCommerce support to accommodate the anticipated orders and inquiries.
- Ask your team if they can recommend anyone who can work on an hourly basis. Acquire assistance only on peak days and pay your recruit per hour as a freelancer. This gives them an acting consultant post and does not enlist them as an official employee of your company.
- Post a Help Wanted ad on your website and social pages. Follow your company’s hiring and recruitment process. You enlist the recruit to your payroll as an official employee, but let them go after the peak sales season.
- Work with a staffing company to help you find an independent contractor for your eCommerce needs. The staffing company sends you a list of qualified and experienced candidates who will work on your required hours and required tasks. The independent contractor will be under the staffing agency’s payroll.
Your company has expanded its marketing efforts. As part of your new campaign, you will be releasing eBooks and monthly newsletters to your subscribers. You need an experienced writer to help you put your ideas together and write engaging but informative publications.
What do you do?
- Ask your friends or team members if they can recommend someone to take on the writing job. Discuss the payment terms with the writer (Do they want to be paid hourly? Per word? Or per project?), and pay them as a third-party service provider.
- Post a Help Wanted ad on your website and hire someone based on your company’s hiring and recruitment process. This means enlisting the worker on your payroll and letting them go after the project is done.
- Work with a staffing firm to help you find experienced and qualified writers. The writer will be pre-screened and paid by the staffing company.
The correct and legal solutions for both cases are option C. If you answered differently, you’d be infringing IRS regulations and risking penalties including back tax charges.
What is an Independent Contractor?
There’s a lot of speculation as to what defines an Independent Contractor. Even people who identify themselves as one may be technically incorrect.
Perhaps this uncertainty may be the reason why some business owners are still on the fence on whether working with an Independent Contractor is a worthy investment. If you’re still mulling it over, have a look at the Pros and Cons of working with independent workers:
- Independent Contractors are on the Staffing Company’s payroll – which means easier recruitment and hiring procedures for businesses that employ their service
- Work is on per project basis
- Independent Contractors are often pre-screened by staffing companies
- Tax and health insurance responsibilities are shouldered by the Independent Contractor
- Independent Contractors sometimes work with multiple clients at once
- They often expect schedule flexibility
- Because ICs are not employed by your company, they are immune to sanctions and limitations implemented on in-house employees
Staffing agencies – the Smarter Choice
Not every business owner has the luxury of time or recruitment prowess to fill in temporary posts with qualified people – especially on short notice.
This is where staffing companies come to the picture.
Whether you need a job that needs one worker or an entire team, a staffing company can give you a list of qualified candidates already screened and trained for the job.
Because the independent worker is employed by the staffing company and not your business, you’re free from unemployment responsibilities and other matters of accountability. The independent contractor’s payroll taxes, paid holidays, health insurance, and other employment bonds are also shouldered by the staffing agency, and not the business that needs their service.
Staffing agencies also protect independent workers from being taken advantage of by unscrupulous employers. With a staffing firm, they can ensure proper payment and work support.
Hiring an independent contractor comes with a horde of benefits – but it also comes with an array of responsibilities. Now that you’ve learned the key information about employing independent workers and working with a staffing company, you can make well-informed hiring decisions in the future.