Many home-based businesses are sole proprietors and often solo practitioners. But with success may come the possibility of hiring employees or contracting for services.
Employees bring a host of legal requirements. And home-based businesses must comply with those requirements. If you hire an employee, you’ll be required to comply with:
State and federal labor laws
Minimum wage and overtime laws
Discrimination laws
Income tax and other paycheck withholding requirements
Occupational health and safety requirements
Your other option is to use independent contractors. The difference boils down to the workers’ job duties and how much control you have over them. Employees are generally trained by the employer. The employer also provides the equipment to do the jobs and pays employees hourly, rather than by the job.
Independent contractors essentially are in business for themselves, like you. Unlike employees, independent contractors generally:
Set their own hours
Determine how to do the work
Are not trained by you
Can profit or lose money from what they do
Are able to assign their own employees to do the work or to do it themselves
Are hired for one job, not a continuing relationship
Have more than one client at a time
Pay their own expenses
Work elsewhere, using their own offices and equipment
Agree to be responsible for satisfactory completion of the job
Are obligated to make good when they fail
This is another area in which you may wish to seek legal advice. If the government determines that you have misidentified an employee as an independent contractor, you can be liable not only for back taxes and other withholdings, but also fines and penalties.
