Are You Hiring A Salesperson For Your Offline Consulting Business Who Is An Employee Or An Independent Contractor?

If you sell online marketing services to offline businesses, and you’re considering hiring someone to help with your sales efforts – a salesperson for your business – then you need to clearly understand whether you are hiring an Employee or an Independent Contractor. This is actually quite an important consideration for any job that needs to be done in any area of your company, but for now we are going to focus on hiring a salesperson to expand your marketing efforts.

If your business is located in the United States of America (the US), then your business taxes and hiring expenses will be significantly affected by this legal distinction between a worker who is an employee, and a worker who is an independent contractor.
This is because you are compelled to meet certain regulatory and statutory requirements if you hire an employee, but not so if you simply pay for the services of an independent contractor.

What’s more, these rules and regulations that govern the hiring of employees versus independent contractors do not apply only at the federal level, but at the state and sometimes the local level as well. So be sure to do your own investigation into the labor laws for your own state and locality, as these can vary greatly from place to place. Furthermore, even though we are only considering the US regulatory environment here, this is an area that you most certainly need to investigate for yourself regardless of the country in which you do business.

In the US, the most significant issue is the requirement for employers to pay their share of Social Security Taxes, Medicare Taxes and Unemployment Taxes on the employee’s wages, as well as withholding and paying the employee’s share of Social Security and Medicare Taxes to the federal government. This distinction also affects what documents and information they are required to provide you, and what tax documents you need to give to them when they are hired. In addition to this, you may also have to pay penalties because you failed to file the required tax forms, and failed to pay the appropriate employment taxes. The bottom line is that you’d better get this right, because most businesses simply cannot afford to get it wrong!

Fortunately for us, the US Internal Revenue Service (IRS) does provide some guidance on how to determine whether a worker is considered an employee or an independent contractor for tax purposes. You can find their article, “Employee vs. Independent Contractor – Ten Tips for Business Owners” at the www.IRS.gov website, which explains that there are three key factors that impact this determination.

Those three determining factors are:

1. Behavioral Control
- Do you get to tell the worker how you want the work done?
- Do you dictate the process to be followed?
- Do you supply the tools to be used?

2. Financial Control
- Do you get to tell the worker how to allocate their budget?
- Do you dictate which personnel they use for delegated tasks?
- Do you have a say in whether they can use, or how much they
can pay sub-contractors?
(Side Note: If you are an independent contractor looking to
sub-contract some of your work, then you also need to give
consideration to these issues yourself. Just because you are
an independent contractor does not preclude you from having
employees of your own.)

3. Type of Relationship
- Do you have an employment contract?
- Does the worker get employee-type benefits?
- Does the business relationship continue after the initial
project is done?
- Does this person work only for your company?

The essential distinction between employee and independent contractor is summarized quite nicely in tip number six, “If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.”

Now if you are still unable to decide whether your worker is an employee or an independent contractor using these guidelines, then you can actually ask the IRS to make that determination for you by filing Form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding”. But be warned… The IRS could take as much as six months to get back to you with an answer.

So before you do hire someone to expand your sales efforts, be sure to take the time to decide whether you do want to hire an employee or an independent contractor. Then once you’ve made that decision, take the time to write the appropriate contracts or agreements and plan out the work process and/or results that you’d like to see.
Plan ahead so as to avoid any possible confusion and subsequent painful tax bills.