Thinking independently: the pros and cons of using independent contractors to grow a small business.

Author:McCrea, Bridget
Position:Human resource management
 
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Some small business owners use full-time employees, while others rely on independent contractors. Willie Middleton II prefers a mixed bag, and rounds out his two-person full-time staff with up to eight to ten independent contractors in any given week.

This employment strategy gives Middleton, CEO of Atlanta-based Southern Mitigation & Restoration Services, the flexibility to ramp-up to handle construction projects, or scale back when business slows. It also reduces employment paperwork and tax obligations and allows Middleton to tap into the knowledge and expertise of other business owners.

Middleton, whose 3-year-old firm renovates older homes for investors, turns to independent contractors to handle the electrical, HVAC, plumbing, roofing, drywall, and flooring for the properties. He checks references thoroughly before putting a new independent contractor on a job site, he says.

Once on board, Middleton says that unlike his frill-time staff, which handles general labor tasks, the independent contractors require little in the way of paperwork. They're responsible for their own taxes, so he simply has to retain a W-9 (which shows the company name, owner, and tax identification number) form on file and generate an annual 1099-MISC tax form (which shows how much was paid out to that company) for each independent contractor.

"Overall," says Middleton, "I've found it to be a much easier way to mobilize a workforce."

1099 BASICS

Independent contractors work for themselves, and are typically business owners who take on projects outsourced by other firms. This means the company that outsources the work isn't liable for payroll taxes or health benefits for those individuals, who typically aren't protected by worker's compensation or most labor laws.

Independent contractors can "work from anywhere" and tend to perform "non-core" work for individual companies. The owner of a hair salon, for example, may use a contractor to create marketing brochures and advertising materials for her business, while a financial planner may hire one to handle 10 hours of filing a week.

Eva Rosenberg, publisher of TaxMama.com in Northridge, California, says independent contractors are an attractive choice for entrepreneurs who want to avoid the complexities of payroll and tax obligations. What companies need to be aware of, says Rosenberg. is that the person to whom you shell out a gross payment (as in, no taxes taken out) on a regular basis may not always be considered...

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