Employees

[John Dewey]

Having been both a small business employer (1 to 3 part time employees) and
an employee of a small business (4 employees) I feel I can speak from both
sides.

The first thing to consider is do you want to hire an employee or an
independent contractor. As I understand it an employee is someone who works
for you with your supervision and your tools and you are responsible for
withholding taxes, workmans compensation insurance, liability insurance,
etc., etc.. An example of an employee would be a factory worker at Ford
motor company. An independent contractor is some one you hire to do a
specific job using his tools. You pay a set fee and he is responsible for
all taxes, insurance, liability, etc., etc.. An example of an independent
contractor would be a plumber you hire to come in and repair you toilet.

You should pay an employee less than an independent contractor since you are
paying ½ of the social security taxes, carrying the insurance, and dealing
with the withholding taxes, etc.. If you hire an independent contractor he
should be compensated for his cost of this overhead.

As far as IRS is concerned there is a large grey area between the
independent contractor and the employee and they have been known to try and
tax both side. I strongly suggest you discuss any final plan with your
accountant and/or lawyer. A written contract spelling out just what is what
is probably a good idea. A few years down the road it may prevent a
misunderstanding as to what was agreed upon.

If you hire an employee I strongly recommend workmans compensation
insurance. I had an employee who was injured the second week he worked for
me and workmans compensation paid out over $50,000.00 in claims. Suddenly a
few hundred dollars a year premium looked a lot smaller!


John A. Dewey


>Dear list,
>
>Having built a rather sizable business without ever working at a store or
>someone else's shop I am at a loss as to how to work out certain aspects of
>my employee's compensation.  I am not looking for anything which will get
us
>into trouble, just some general guidelines or examples of other's
experience.

(snip)
>Andrew Remillard