June 2011 - Hillaslaw

 James M. Hillas, P.C.—Protecting you so you can protect yourself. Issue No. 3, June 1, 2011 A Monthly Message From Your Attorney Hiring Independent Contractors: Balancing the Pros and Cons Quotable Quote “Lawsuit: A machine which you go into
as a pig and come out of as a sausage.”
~Ambrose Bierce~
Small businesses often struggle with proper staffing
levels. One solution is to hire independent contractors (ICs).
Unlike employees, ICs don’t get fringe benefits. In addition,
they must provide their own insurance, including workers compensation coverage, and they are responsible
for their own taxes. That means the employer doesn’t incur payroll tax liability for an IC.
Although there are benefits to using ICs, there are disadvantages as well. Before you decide how to staff a
particular job, balance the pros and cons to see what’s right for your business.
Benefits
Saving Money
Even though most employers pay ICs more per hour than they would pay employees to do the same
work, it usually costs less to hire ICs. If a business hires an employee, the business incurs expenses
including benefits, office space, and equipment. The business also must pay Social Security and
Medicare taxes, state unemployment compensation insurance, and workers compensation insurance.
These expenses can increase payroll costs by 20-30%.
Staffing flexibility
Working with ICs gives employers more leeway to hire or fire workers. This is helpful when
dealing with fluctuating workloads. An IC can be hired for a specific task or project, knowing that
the worker will be gone when the job is finished.
Reducing exposure to lawsuits
Employees have many rights under state and federal laws. ICs are not protected by many of these
laws. Rights that are available to employees but not to ICs include:
ü minimum wage and over-time compensation
ü protection from employment discrimination on the basis of national origin, color, religion
and gender (ICs are still protected from race discrimination)
ü forming a union
ü taking time off to care for a sick family member
James M. Hillas, P.C.—Protecting you so you can protect yourself. J Issue No. 3, June 1, 2011 Disadvantages
After reading about the benefits of hiring ICs, you may never want to hire another employee. But there are
significant drawbacks to using ICs, which can be costly to employers.
Less control
Unlike employees, whom you can closely supervise and monitor, independent contractors have
autonomy to decide what to do and how best to do it when completing the task for which they are
hired. If you interfere too much in an IC's work, you risk making the IC look like an employee, in
which case you may be liable for payroll taxes and workers' compensation insurance premiums. If
you want significant control over your workers, classify them as employees.
Potential competition
By definition, an IC can (and should) work for multiple clients. The IC who works for you today
could be working for your competition tomorrow. Protect yourself from competition or disclosure
of valuable business information through non-solicitation and non-disclosure provisions in a written
independent contractor agreement.
Workers come and go
Many employers use ICs for relatively short-term projects. This means that workers are constantly
coming and going, which can be inconvenient and disruptive. The quality of work also may be
uneven. Employers who want to rely on the same workers day after day are usually better off hiring
employees.
Restrictions on termination
Your right to terminate an IC's services is limited by the terms of your written IC agreement. If you
fire an IC in violation of the agreement, you may be liable for breach of contract.
Liability for on the job injuries
Employees injured on the job are usually covered by workers' compensation insurance. In
exchange, these employees give up the right to sue their employer for damages. ICs are not covered
by workers' compensation, so if they are injured on the job, they may be able to sue you and recover
damages.
Limited intellectual property rights
If you hire an IC to create a work that can be copyrighted—such as an article, book, or
photograph—you might not be considered the owner of the work unless your written agreement
says so. By contrast, if an employee creates such a work, in most circumstances you will
automatically own the copyright.
Potential government audits
State and federal agencies—particularly the IRS—want to see workers classified as employees, not
ICs. The reason is simple: when workers are classified as employees, their payroll taxes increases
government revenue and makes it harder to under-report or hide income.
The Bottom Line
The choice of whether to use an independent contractor or an employee depends on many factors. Talk with
your business attorney before making that decision. If you do use an independent contractor, be sure to
protect yourself with a written independent contractor agreement that takes into account your unique
business needs.
2 James M. Hillas, P.C.—Protecting you so you can protect yourself. Issue No. 3, June 1, 2011 Smart Business Tip of the Month Cultivate Endless Referrals Each of us knows we can provide a valuable service. However, without an ongoing
and increasing number of new, quality prospects, we’ll eventually run out of people
to share the benefit of our services with. In “Endless Referrals: Network Your
Everyday Contact into Sales”, Bob Burg offers practical advice for developing
profitable relationships with each new contact you meet.
Ask feel-good questions designed to put your conversation partner at ease and begin
the rapport-building process. Here are some of Burg’s tried and true feel-good
questions:
“How did you get started in the widget business?” Most people love the
opportunity to tell their story to someone. Give them that chance.
“What do you enjoy most about what you do?” Again, you’re giving your contact something positive to
associate with you and the conversation.
Now it’s time for the key question: “How can I know if someone I’m speaking with would be a good
prospect for you?” This sets you apart from others they meet in business who only want to know how the
conversation will benefit them. In fact, nothing builds trust and credibility with a prospect better than
actually referring business to them.
Your conversation has ended and you never even mentioned your products or services. That’s fine.
Because, “All things being equal, people will do business with, and refer business to, those people they
know, like and trust”, says Burg.
Assuming you’ve gotten your prospect’s business card, you are now in a position to follow-up correctly
and systematically to nurture this new relationship.
Do this often enough and before long, you’ll cultivate a network of endless referrals. Read more about
“Endless Referrals” here: http://www.amazon.com/Endless-Referrals-Third-Bob-Burg/dp/0071462074.
About the Firm James M. Hillas, P.C. is a law firm specializing in the day-to-day needs of small businesses. Whether you’re a
startup in a garage or a well-established company, Jim Hillas provides high quality, cost-effective representation to
help you protect your investment and run your business more profitably.
Special areas of expertise include business entity formation, employment matters, drawing up contracts,
bringing in new investors, incentivizing slow pay accounts, as well as succession planning and risk management
strategies. The firm also maintains an excellent referral network of lawyers, which allows for outstanding
representation in other areas of law.
Disclaimer: This newsletter is designed for general informational purposes only. The information contained in this issue is neither
legal advice, nor the creation of an attorney/client relationship. An attorney/client relationship may only occur with the express
written consent of James M. Hillas, P.C.
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