Your business is growing leaps and bounds. And with the holidays around the corner, soon you could have orders coming in so fast that you’ll need to consider hiring some additional help.
You’re not alone: Small businesses are a major source of employment in the U.S. In fact, the U.S. Small Business Administration (SBA) reports that nearly 2 million of the 3 million new private-sector jobs created in 2014 came from small businesses.1 That’s great news. But how do you decide what type of hire you need?
If you’re becoming an employer for the first time, you should always start by making sure you’re in full compliance with federal laws and regulations. Even if you’re familiar with the rules, it never hurts to brush up.
The SBA offers a handy guide on meeting government requirements for employers, from the proper tax forms to offering workers’ compensation insurance.
Whom to hire
Before scheduling interviews for the open position, it’s important to know what type of setup best suits your company and the tasks you’re hiring for. Several models are available, each subject to different considerations and regulations.
- Independent contractors. Generally speaking, independent contractors set their own hours and work on a project-to-project basis. You might hire an independent contractor to create your website or design a logo. They’re technically not your employees, which means you aren’t required to provide overtime pay or healthcare coverage. Nor are you responsible for covering any part of their Social Security and Medicare taxes.
There are a number of advantages to this approach. It’s frequently more affordable to pay by project instead of by hour, and hiring on a short-term, temporary basis allows for more flexibility, both for you and the worker.
A word of caution: As of July 15, 2015, the U.S. Department of Labor has narrowed the definition of an independent contractor.2 If a worker you have classified as a contractor is found to meet the requirements of an employee, you could face some costly legal consequences, such as having to pay back taxes and penalties for federal and state taxes, Social Security and Medicare.
While the precise legal dividing line between contractor and employee can be fuzzy, the most important factor is the degree of economic dependence on both sides.
To ensure the job will qualify as independent contract work, ask yourself: Will this work be an integral part of my business? What level of investment am I asking for? How permanent will this relationship be?
- Hourly employees. Sometimes you find yourself needing regular assistance with certain tasks, whether it’s to pack boxes, answer phones or maintain your website. If you’re looking for a greater commitment than a single project — whether that’s ongoing or just for a month or two during the holiday rush — you might be better off opting for an employee.
Temporary or seasonal employees work on a short-term basis, usually with a clear, prenegotiated end point. State laws vary, but often employers are required to pay fewer benefits, and the industry pay rates for temporary or seasonal work are usually lower. However, they are still considered hourly employees, so regulations involving minimum wage and overtime apply.
You’ll want to research the current minimum hourly wage in your state and the Fair Labor Standards Act (FLSA), which requires paying overtime wages to nonexempt employees for time worked beyond 40 hours per week.
As with independent contractors, misclassifying part-time or full-time employees as temporary or seasonal can cost you — you’ll owe them back pay for all associated benefits. Be clear up front about the temporary nature of the work, and make sure there is an end date in place.
If you need a hand on a more regular basis, it may be time to take on a part-time or full-time employee. There are definite advantages to investing in a more permanent workforce. The lower your turnover, the more time and energy you can save on hiring and training.
However, you will need to abide by statewide employer laws and the FLSA, and to contribute to your employees’ Social Security and Medicare. It is also worth noting that while the FLSA doesn’t set strict requirements for how many hours per week are considered part time versus full time, the Affordable Care Act specifies that anyone putting in 30 hours or more is a full-time employee.
As such, these workers are entitled to employer-based healthcare coverage.3 However, companies with 50 employees or fewer can qualify for special healthcare plans through the Small Business Health Options Program.
- Salaried employees. When you need to hire for a stable, long-term job that requires skill and personal investment — for example, a marketing associate or engineer — it might be time to hire a salaried employee.
Building a lasting professional relationship can create greater loyalty and a greater sense of investment in your company’s vision. Still, committing to offering a yearly salary, as opposed to an hourly wage with flexible hours, can be a big step on your part. Look at your business’s annual income: How much can you afford to offer? Something to keep in mind as you assess your budget: As of December 1, 2016, salaried employees making $47,476 per year or less will be eligible for overtime pay.
Still, a qualified, hardworking salaried employee can be invaluable to a small business. You should think carefully before selecting a new hire to make sure the person is the absolute right fit for the job — and your company.
For more insights tailored to the needs of a small business, check out the business solutions page of the FedEx® Small Business Center site. Get informed, be inspired and link to the latest resources designed to help your company prosper.
More from FedEx Updates
Find additional tips and tricks to improve your FedEx experience on FedEx Updates.
1Contreras-Sweet, Maria, “Small Businesses Create 2 Million Jobs,” Jan. 15, 2015. The SBA Administrator.
2Smith, Allen, “DOL Narrows Independent Contractor Classification,” July 16, 2015. Society for Human Resource Management.
3“Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act,” March 2, 2016. Internal Revenue Service.