This Podcast Is Episode Number 499, And It's About Construction Company Employee Vs. Contractor - What You Need To Know Depending on the nature of your construction business, you may have workers who are employees or contractors, or you may have both. Each has its merits, but it's important to review which are to meet your tax obligations. With so much discussion about employees, payroll, and payroll taxes, you may feel like missing out by not hiring many employees. The reality is that as a small business owner, you do not have to hire employees. To hire or not to hire employees is one of the few optional things where the business owner can choose, change their mind, and change direction as needed. When you have an employee, you must withhold income tax and report on additional benefits. Contractors generally look after their tax obligations. Is there another way? Yes - to outsource most of the mundane low-value tasks that take time away from what you are skilled in. As the owner, you can use that time to meet with clients, create estimates, collect money, pay bills, and have a little left over. It's against the law to treat an employee as a contractor. Significant penalties apply if you do, so it's essential to get it right. The simplest way to remember is: An employee works in your business and is part of your business. A contractor is running their own business. But how can you be sure that you've got an employee or a contractor on your hands, especially with remote work blurring the lines between employees and contractors? Does it come to the point that you should be hiring a worker as an employee when you thought they were a contractor? There are six factors to consider: 1. Ability to subcontract or delegate An employee is not able to subcontract or delegate the work. They must perform the outlined tasks themselves. If they can't do the work themselves for any reason, say a prolonged illness, and someone else does it, this is a substitution. Your business would then pay the other person to carry out those activities. A contractor can delegate the work as long as they're not obligated to do it themselves per the contract. If your contractor didn't work, they would arrange for another qualified person to do it. You would pay your contractor, who would then pay their subcontractor. 2. Basis of payment An employee is paid a set amount per period. The most obvious example would be an annual salary or hourly wage. Some employees are paid piece-work rates. They receive an amount per successful sale or per the number of pieces produced. A commission basis would be a price-per-item structure. A contractor, however, is paid an agreed-upon price in exchange for a predetermined result. Some contracts may specify the amount to be paid in increments as stages of the project are completed. But the key takeaway is that a contractor is paid when the agreed-upon result is achieved. 3. Equipment, tools, and other assets If your business is responsible for providing the equipment, tools, and other assets required to perform the job, that's characteristic of an employee. If the worker is providing these items, they are likely a contractor. 4. Commercial risks Employees do not bear the commercial risk and are not liable for correcting any defects in the work at their own expense. Instead, your business takes this responsibility. The worker will be paid for the time required to complete the task. A contractor assumes commercial risk. They are responsible for fixing any mistakes on their own time. Your business does not have to pay for any extra time taken or materials used unless otherwise specified in the contract. This additional work would fall under the umbrella of the terms set at the beginning of the project. 5. Control over the work Employees have to complete the work the way the employer specifies. What work is done, where it's done, how it's done, and when it's done are all up to the employer. The employee...