I work in the time & attendance industry, so I do know a bit about this. As alluded to above, there are very strict requirements about who you can call a contractor and who's considered an employee. The tricky part is that the Department of Labor and the IRS have different rules, and navigating between the two can be a challenge.
On the other hand, employees can often up and leave even more easily than contractors -- because in most cases, contractors are, well, working under a
contract (thus the name "
contractor") which can be written to limit their ability to leave you in the lurch, whereas employees aren't.
So hiring people as employees doesn't necessarily guarantee they'll stick around any longer or be any less trouble than contractors.
For a micro-business, at least in the short run, you'll be small enough to be exempt from many wage and hour laws -- but not minimum wage/overtime rules. If you have even one employee, those laws apply. And they can be just as tricky to navigate as the rules about what makes a contractor a contractor and not an employee.
For instance, there can be differences between state labor laws and federal labor laws. I recently read a story about a restaurant who consulted with their state department of labor and got approval for a wage deduction they wanted to take... only to get hit with a judgement for over $200,000 in back wages by the feds, because what they did was allowed under state law, but not under federal law.
Seriously, your best bet would probably be to check with an employment law attorney and/or a tax accountant (probably both) to see which arrangement would be the most beneficial to your business at this stage of your development, and to make sure you're fully aware of the requirements you'll have to meet and the laws that will apply to you, no matter which you decide.
--Torka
Simple Question About Employees...
