Why A Contractor Should Be A Entrepreneur’s First Hire
In the early days of starting your business, many of us get excited at the thought of our first hire. The idea of bringing a team around us to help achieve the vision and mission of our business puts us all the more closer at achieving our even bigger dreams.
When that time comes for you to bring on that next hire, you quickly discover there are a lot of decisions to be made.
How will you pay this person?
What tasks will they manage?
What sort of management style do you need to tap into?
These are all good questions, but they can be heavily influenced by a single decision - should you hire a contractor or employee?
What a Contractor Is And Is Not
A contractor is a self-employed worker who performs services for another business. Contractors can be veterinarians, doctors, lawyers, subcontractors, and even accountants. Contractors are not employees, which means they have different rights and requirements from those who you do employee.
The IRS considers 3 factors when looking to differentiate employees and contractors. They assess the behavioral relationship, financial relationship, and ultimately type of relationship.
While we will not be going into the specifics of each in this article, it can be summed up by simply stating: contractors are separate business entities who you partner with to accomplish work within your business.
This means, generally you do not have authority over the specific times they work, specific location, or the tools they use to get their job done. For example, it is reasonable to request they show up for a specific meeting in a specific location. However, you cannot require them to work from 9:00 - 5:00 in your office.
Why A Contractor Should Be Your First Hire
Women business owners face many challenges our counterparts often do not face. Maybe your child’s teacher consistently asks you to volunteer in the classroom but never asks your husband. Maybe you face criticism from family members who think you shouldn’t be working in the first place!
As a woman business owner, I know these challenges can feel overwhelming but it is these little milestones that signal you are heading in the right direction. An exceptionally important milestone is signing a contract with your first new hire.
While a new hire can be an indication you are headed in the right direction there is a new load of responsibility that now sits on your shoulders. You may have concerns about whether you can afford a new hire, whether this person will maintain your same quality level, or whether they will even enjoy working in your business.
One way to minimize all of these risks and concerns is to hire a contractor. When you hire a contractor, you will find the following benefits:
Decreased costs - With employees you will also have to pay payroll withholdings. These taxes add extra costs and can add up over time.
Start Small - If you need help but do not have enough work or finances to pay someone 20+ hours a week, it is perfectly acceptable to start small with 5 hours per week and work your way up.
Experienced Entrepreneurs - There is a lot to figure out in the early stages of owning a business. This can mean unpredictable tasks and sometimes clunky processes. Contractors who frequently work with entrepreneurs can keep up with your fast pace whereas employees may expect more consistency.
Factors to Consider when hiring a Contractor
Making a contractor provides you with flexibility and a reasonable budget to get started. There are still some factors you should consider when making this decision. Consider asking yourself questions like:
What is my budget? - Depending on the type of working relationship, you may have to do a few other calculations. Such as how many hours per month could they work at a given rate or what would be the required rate of return for this investment?
Who is the ideal candidate? - If you need someone that will require training, work specific hours, at a specific place, and will have your constant oversight, you may be looking for an employee - not a contractor.
What do I need for this relationship to be successful? - You may be hiring a contractor to take some work off your plate. You may also be hiring a contractor because there is a part of your business you just don’t like doing, like bookkeeping! Write down your KPI’s to assess whether this contractor can help you achieve your goals.
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We are so excited for you to expand your team! We hope this leads you to doing more of the things you want to do, while taking a vacation from those that drain you. There are major differences between hiring a contractor versus an employee. In those early stages of running your business we generally recommend a contractor for the reasons above but every business is unique! Which means hiring an employee may be the right choice.
If you are unsure, we recommend reaching out to discuss your options!
