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January 29, 2015 | business

Hiring Employees and Independent Contractors

by Kathy Tremmel, Business Attorney

Your business is going well and you have decided to bring in extra help. Here are some important considerations as you should address when hiring employees or independent contractors.

  • Determine exactly what you want your new hire to do. Prepare a clearly written job description outlining the job duties. Both you and the new hire need to be able to properly assess whether this job will be a good fit for this person.
  • Understand your management style. Hire someone who will work well with you. For example, if you hire someone who needs a lot of feedback, be sure you will be able to provide this feedback.
  • Hiring takes time. Plan on adequate time for interviewing, hiring and training a new hire.
  • Develop a review policy for employees. You need to have a process in place for providing and documenting constructive criticism and reviews of employees.
  • Correctly characterize your new hire as an employee or an independent contractor. Although businesses prefer to characterize workers as independent contractors since the overhead costs of taxes, benefits, and insurance are passed on to the independent contractor, mistaken classifications can be very costly. If the IRS determines that an employee was incorrectly characterized as an independent contractor, the business will be required to pay back wages, overtime, FICA, unemployment contributions, worker compensation, medical insurance, vacation pay, and other amounts that should have been withheld on the employee’s behalf. Generally, the IRS will focus on the degree of control a company has over its workers in determining the correct classification. Texas courts frequently start with the presumption that the work relationship is one of employer and employee unless there is a valid contract designating the worker’s status as an independent contractor.
  • Liability exposure. If an employee is acting within the scope of his or her employment carrying out company business, the company will normally be held responsible for the employee’s actions.
  • Understand and comply with applicable state and federal regulations governing your company’s obligations to its employees. Your business is required to pay employment taxes and withdraw and forward taxes from the employee’s paycheck to the correct taxing entities, including federal and state taxes, Social Security and Medicare contributions and unemployment taxes. An employee handbook is very helpful to explain your workplace policies.
  • Document your relationship with an employment or independent contractor agreement in writing. Specify each party’s obligations. Be sure to protect your company’s confidential information, intellectual property and trade secrets.
  • Be prepared to terminate the relationship if the employee or independent contractor does not work out.

Hiring help for your business can be tricky. Business owners should consult with their legal and tax advisers for interpretation of specific requirements concerning hiring employees and consultants.

Article and information is courtesy of Kathy Tremmel, Business Attorney at Tremmel Law, PLLC. Amplify Credit Union does not endorse or guarantee the perspectives, the advice, the users, the businesses, or the products or services sold by any users or businesses that appear in this article.