An employee is a permanent and dedicated member of your company and must be treated under the federal, state labor, and wage laws. In contrast, the independent contractor operates under a separate business name from your company and performs job functions for you temporarily. The stricter guidelines are further elaborated by the United States Internal Service Revenue (IRS). The website essentially asks the following questions, and if the answer is favorable to the first three questions, then the worker is likely considered an employee:
- Does the person work on company premises?
- Is the person using their own tools?
- Is the person in control of their own schedule for completing work?
- How is the person being compensated?
(READ: The Benefits of Having Employees Instead of Contractors)
Because there is no one answer to the question of whether to hire employees or independent contractors, most companies often simply opt for independent contractors. This is due to the fact that independent contractors require no absolute commitment and fewer documents compared to employees.
Let us say you did hire an independent contractor. After five months, the contractor has done wonders for your company and you are seriously considering upgrading his status to an employee to reward him for his production. What signs should tell you to ultimately push this decision? This is what we will be covering in this article.
Here are eight instances that should prove the case why you should convert your contractor to an employee:
1. When a service contract does not exist
For the protection of both parties, you should have already gone through the motion of drawing up the salient points of your contract that would specifically dictate the job needed to be done and the deadline for it to be finished. Without this, you may be going through the traditional employee and employer working relationship.
2. When this talent is what you want to absorb in your company
If your independent contractor has repeatedly given you work that is beyond excellent, snatch him up before the competitor does. If they are proving to be of advantage to your business, then make sure that you secure their skills long term. Give them the benefits and the package that they deserve so they will accept and stay with your team.
3. When you keep hiring the independent contractor again and again and that the working relationship becomes indefinite
The more long-term work or more permanent jobs you give to your independent contractor may mean that he or she is your employee. Remember that independent contractors work on a temporary and needs-only basis so if they continuously work for you for an extended amount of time then you may offer them an employment package.
4. When you want them to exclusively work for you
Several brands and companies have engaged several of their independent contractors exclusively to their service. This is also quite the same in your case as you want to monopolize the use of their talents.
5. When you have misclassified an employee as an independent contractor, you have to do this conversion right away
This is to avoid any further legal implications with this employee. Make sure you know you also know the employment relationship that you have so you won’t have to worry about making a mistake. In hiring workers in other countries, you also need to act according to the rules and regulations of that country.
6. When an independent contractor performs the core business services, you should rethink your working relationship with this worker
If you’re a real estate company and you are hiring independent contractors as real estate agents, you might have a problem with them having to work for real estate companies other than your company. Contractors should only provide services that supplement your core services but they should never be an integral part of the business.
7. When you don’t get billed by independent contractors, you might be paying them just like your employees
You might as well hire them. Also, contractors should be treated as independent businesses engaging with your company. Their billings should fall under accounts payable and not as wages or salaries. Check with your finances and their deliverables if it outweighs the purpose of hiring them as vendors.
8. When your company is already dictating the work hours of your independent contractors, then you need to look into the contract and weigh your pros and cons in hiring them as employees
Contractors dictate their time and how they want to complete their project with you and not be restrained by work hours. They are never on an hourly basis but paid per project. If their length of working hours is almost the same as the regular employee, maybe you can have them work for you as such.
The status of a worker can also dictate this loyalty, productivity, and enthusiasm to work in the company. Your employees are the ones who will be helping you achieve your business goals and that it will be very important that you have their loyalty while they are working with you.
When you are in doubt as to how to classify your work, it would always be safer to treat them as an employee. However, you can always seek legal help for the proper classification of workers in your company.
If you have checked out the signs above and have already seen a pattern, act right away and convert them to your employees.
Talk to us and see how Rivermate can help you with your business.