When you own your own business, it can be hard to determine whether you the people who work on your team and in your business are actually employees or are they independent contractors.
The people on your team we are talking about here are people like virtual assistants, bookkeepers, accountants, lawyers, business managers, community managers and others of similar stature.
With an online business, it can be a little tricky figuring out whether you have employees or independent contractors.
What is the difference between an employee and an independent contractor?
Let’s start with the difference between the two.
An employee is someone who works directly for you in your business and is on payroll. You will also have to prepare paychecks and submit payroll taxes. An employee will always report to you for their tasks and may even report in based on the work completed. Many times, an employee will also be using your equipment (i.e. computer and other tools are owned by the business). Employees also tend to work out of your office.
An independent contractor is someone who works for themself in their own business, but assists you in your business as well. An independent contractor owns all of their own equipment. You pay your independent contractors a set amount of money, whether monthly, weekly or hourly. You do not remit payroll taxes for your independent contractors. But you will need to prepare a 1099-MISC to be issued to your independent contractors in January of the following year if you paid more than $600 to your independent contractors.
Now let’s look more closely at your team.
Virtual assistants and other people who closely assist you in your business can be kinda tricky to determine if they are employees or independent contractors.
Yes, most of the time they are going to have their own equipment that they use to help you.
But they also report directly to you for their work assignments and their progress.
Most of the time, they will most likely be independent contractors, they do not work at your location and they own their own equipment.
When they work from your location, an office or even in your home, they do become employees, most of the time.
Copywriters and other Freelance Writers
Most of the time, your copywriters and other freelance writers will be independent contractors.
Just like with virtual assistants, as long as they work from their own location and use their own equipment, you have independent contractors.
Bookkeepers can be both employees and independent contractors.
But for most online business owners, bookkeepers are independent contractors.
Bookkeepers are virtual and work on their own equipment from their own location. They provide you with the information that you need to help you in your business.
Accountants and Lawyers
Accountants and lawyers will be independent contractors, until you hire someone who works directly in your business.
For example, you hire a lawyer, who works solely for you, like an In-House Lawyer, then they will become an employee. But most of the time, you are going to hire a lawyer and keep them on hand for when you need a lawyer in your business.
Community and Business Managers
Just like virtual assistants, your community and business managers can be either an employee or an independent contractor.
It really depends on their job tasks and where they work from.
As online business owners, the majority of our assistants are virtual and work from their own home with their own equipment. By the IRS’s definition, this does make them independent contractors.
Benefits of Having an Employee
When you have an employee, you know that they are going to show up to work or they don’t get paid. They work set hours, so you always know when they are available. Whereas independent contractors can usually set their own hours and may not always be available when you need them.
Benefits of Having an Independent Contractor
The biggest benefit to having independent contractors on your team is that you do not have to prepare paychecks and remit payroll taxes.
Another benefit is that if something goes wrong with their computer or any other equipment you are not responsible for replacing it. They own their own equipment.
Do you have employees or independent contractors?
Now that you know the differences and benefits and how each of these are classified, you can make sure that you are doing things correctly in your business.
But also remember that there are going to be some rules and regulations set at the state government level that may affect your business and it is your job as the business owner to make sure that you are following all of the rules and regulations for your business.