You may ask why I filed this under Money. Staffing is your biggest expense in running a business, that’s why. If you own a coffee shop, you may need to add staff. But for many other businesses, including most online businesses, you have alternatives to hiring staff that you should consider.
My advice is “Don’t unless you have to.” You may say, “Are you crazy?” You are President of a business with 2000+ people managed. Yes, but there is a huge difference between a big corporation and an online lifestyle business. Big corporations have systems and people to deal with the human resources requirements of employees. They can afford a lawyer if the employee decides to file a complaint against you, even if it is something that you say, “Are you kidding me?!?”
When you are starting out, you have two concerns with employees. When is the person considered an employee and not an independent contractor and what are the governmental requirements if you consider them an employee?
Let’s tackle the first concern. Here’s the bottom line. If the person is a contractor, your first concern is whether you should issue them a W-9.
You may think that they are a business and so they don’t need a W-9, but it is more complicated than that. My accountants want me to get a W-9 from every person and business, so we can determine whether we should issue them a W-9. Many businesses may not have INC or LLC after their business name, so it’s difficult to know their status. The safest way to handle it is to ask everyone to complete a W-9.
If you pay the person under $600 a year, the reporting requirements do not require a W-9. But if you pay them more than $600 a year and they are subject to the W-9 requirements, you do have to turn in a W-9 for them.
Because you don’t always know if you are going to pay them more than $600 in a year, my strong advice is to request that they sign a W-9 form right at the beginning of your relationship.
I had a situation where $600 seemed like a lot of money in the beginning and, I wasn’t aware of the $600 requirement and I didn’t get a W-9 signed in the beginning.
When I found out about it and my accountant asked about it, I tried to get it from the person I had paid earlier in the year and they refused to sign it. So, again, my advice is to have everyone sign one at the very beginning.
The second issue is government reporting. I am not going to go into big detail here, because I do not consider myself an expert in this area.
However, I will say that having a real employee requires extensive government reporting, taxes, and even benefits. Just the topic should scare you. If you are willing or really need to take this on, then research this area thoroughly and get some good accounting, tax, and HR advice.