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What is pros and cons of hiring a contractor or fulltime employee?
I'm planning to hire my friend in my small biz... probably part time. Should I hore him as contractor or an employee? What is the difference anyway?
Public Comments
- The biggest advantage to hiring a contractor versus an employee is that you get to avoid all the taxes that go along with having an employee - such as unemployment tax, the employer half of the social security and Medicare taxes, plus all the paperwork for figuring out the withholding, etc. Basically, you provide the contractor and the IRS with a 1099 showing all that you paid the contractor. The downside is that you lose all control over the contractor. For example, you cannot set hours for the contractor, you will probably have to pay your friend a set amount (i.e., for $500 you will deliver this product with no control over how it gets done or when [within deadline]). There are other factors which will be taken into account by the IRS when making the determination (yes, the IRS makes the final determination, not you). For more info, check out this link: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
- Hi, For my business, I only deal with subcontractors. They are independent workers who you hire in to complete projects. Supposedly they are not allowed to have a regular work schedule, but I'm not quite sure about that. At the end of the year you give them a 1099 and they are responsible for reporting a paying their income taxes. You also report the income you paid to them as an expense, so you're not on the hook for paying taxes on money that you paid to them. For an employee, you must pay payroll taxes and bunch of other fees. It's just much more complicated. If you let them go, you may also have to pay so fees for unemployment compensation. I think subcontractors are the best way to go for a start up business. Good luck, Walt
- There are numerous advantages and disadvantages to both. You might want to contact your CPA, your bank, and your business advisors to determine which is best for you. Another issue -- do you really want to hire a friend? It can be a great way to lose a friend!
