923 – Make the right choice: Tom talks Employees vs Contractors

Summary by ChatGPT

In Episode 923 of the "Screw the Commute" podcast, host Tom Antion discusses the differences between hiring employees and independent contractors, highlighting the pros and cons of each. He emphasizes that the choice between the two depends on your business needs, such as the volume of work and the need for specialized skills.

**Employees** are under your direct supervision and control, often working specific hours and possibly receiving benefits like health insurance and 401(k) plans. The benefits of having employees include control over their work schedules and continuity in operations. However, the drawbacks include the need to pay payroll taxes, provide equipment, and handle more complex accounting.

**Independent contractors**, on the other hand, are typically brought in for specific tasks and often work for multiple clients. The advantages of hiring contractors include paying only when needed, avoiding payroll taxes, and often using their own equipment. The disadvantages include a lack of control over their availability and potential issues with continuity if they are not available when you need them.

Tom also shares a personal story where he narrowly avoided significant financial penalties from the government, which claimed his independent contractors were actually employees. He underscores the importance of correctly classifying workers and ensuring that independent contractors meet legal criteria to avoid legal trouble.

Finally, he advises business owners to consult with legal and tax professionals to ensure compliance with employment laws and to determine the best approach for their specific situation.

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Episode 923 – Employees vs Contractors
[00:00:08] Welcome to Screw the Commute. The entrepreneurial podcast dedicated to getting you out of the car and into the money, with your host, lifelong entrepreneur and multimillionaire, Tom Antion.

[00:00:24] Hey everybody! It's Tom here with episode 923. If Screw the Commute podcast. Today, we're going to talk about employees versus contractors or independent contractors. And you know, you're going to need help in your business one way or the other. And either because of the volume of the work you have that you know how to do, but there's just too much of it. Or you may have specialized needs that need taken care of. So how do you get those people and is it better an employee or contractor? What's the pros and cons? That's what we're going to talk about today. Hope you didn't miss episode 922. That was self-sufficiency. Learning how to do stuff yourself so you don't put out money and waste a lot of time waiting for people to help you. Now, that's not in contradiction to what I'm going to talk about today. Sometimes it makes sense to do this. So this is what you'll have to pick. And. And also I got to tell you, I'm not giving legal advice because the laws vary I guess per jurisdiction and state and federal and all this. So I'm going to give you things you need to pay attention to no matter what where you live. All right. Let's see. Hope you didn't miss grabbing a copy of our automation book at screwthecommute.com/automatefree and check out my mentor program at GreatInternetMarketingTraining.com.

[00:01:43] Oh, and one more thing I'm going to tell you about is how to keep from getting in deep doo doo. Because if you mess this up, you're going to be crying big froggy tears when the government comes in and wants a lot of money from you. All right. So this is an important episode. All right. Let's talk about employees and contractors. All right. Let's start with employee. Well, what's an employee? Well, it's a person that's in your business that's under your supervision and control. Could be part time. Could be full time. They could be eligible for benefits like health insurance, 401 s, profit sharing, stock options, things like that. The pros is you get to direct their work the time on the job, the things, what hours they're supposed to be available, those kinds of things. Lately, in the past couple of years, you know, you have a decision on do they need to be in person in your business or can they work remotely. So that's that's a decision that doesn't affect whether they're an employee or not. Many times you can have them sign a non-disclosure agreement. In other words, when they're working for you, they can't tell your secrets to other companies or anybody really. Now, again, I'm not giving you legal advice. These are just things that you would check with your employment attorney if you had one, or at least check in your state and see what the rules are.

[00:03:10] And there we go on that. Okay. So the pros of having an employee are you direct their time. You know, where they're supposed to be, what time they're supposed to be on the job and so forth. You might not allow them to moonlight on similar competitor companies that compete with you. Again, this would be in an agreement that you would have with them. You might say if they quit, they can't work for in the industry for three years. Now those are harder to enforce. So you better have a good ironclad agreement with your attorney to see if that's even legal or enforceable. And they have the fixed work schedule, and you have a continuity. In other words, if they've been with you for a while, you don't have to hold their hand every time they have to do something. They should know what to do by then. All right, now the cons of having an employee are you have to pay payroll taxes. This is one one of the cons social Security, workman's comp, all the other crap they throw and you have to do withholding. You've got way more accounting to do if you have an employee. We we use a service for that. But still Jennifer has a bunch of crap to do to get ready for payroll every two weeks and so forth. Another con is you still pay them if the work is slow or not coming in, or you have to lay them off and deal with workman's compensation, those kinds of things.

[00:04:39] Also, you normally provide all the tools and equipment that they have to use to do the job. So that's a little overview of employee stuff. Now let's look at independent contractors and what they are. Well there they could be a company or an individual freelancer, either one, and they're usually brought in for specific tasks. Now you can still have an agreement with them. You know that you might tell your contractor, look, if you want my business, you can't work on other these other people. And if they agree to that in a contract. And again, I'm not giving you legal advice, I'm just giving you generalities that you can put forth and make sure your attorney clears it, that they can't work for other people in your industry, but you can't restrict them for working for everybody else, because that's what gets you in deep doo doo, which I'll talk about right at the end. Now, usually they have specialized skills. And I just mentioned working for multiple companies. That's one thing that can keep you out of deep doo doo. So the pros of having a contractor is you only pay them when when they're needed. You don't have to pay when business is slow. Also, they pay their own taxes. Insurance.

[00:05:57] Usually they have their own equipment. Now, occasionally they might use a piece of equipment of yours that happens very frequently, but in general they use their own equipment and computers and all that stuff. And for some jobs or for many jobs like that, I would have, they can be anywhere in the world. Now, if you're hiring a contractor to do a bunch of concrete work at your business, well, that's a different story. They have to be there physically. But for the online stuff, they can be anywhere in the world. Now, the cons of independent contractors is they can jump ship any time. Of course, an employee can quit, of course, but they can have a competitor give them a better deal and just say sayonara. I'm going to go work for somebody else. Like I said, you can still have an agreement with them, but it's probably not enforceable. If they if they're not, you're not giving them any work and trying to keep them from having a livelihood. See? So that's that won't work. And you may have a lack of continuity. In other words, if you bring somebody in to do some computer work and then for six months you don't have any more computer work and you call them back and they're disappeared or gone, and you've got to bring somebody else in that doesn't know your system and start over again. So that's one of the the downsides of that.

[00:07:17] Now, how can you keep from getting in deep doo doo? And let me tell you what happened to me. And I was very fortunate that I didn't get in deep doo doo. So when I had my entertainment company, it was called Prank Masters. We custom designed practical jokes and did 4000 of them in about six years up around Washington, D.C. so it was pretty cool business, you know, as funny as heck and a lot of fun doing it. But I didn't have any employees. It was just me. And I had 35 independent contractors. And you say, well, what kind of contractors is in a prank business, right? We had people that were comedians, we had jugglers, we had midgets. We had a guy. I don't know if that's the correct term anymore, but that's what they called themselves. It was a one man band, and, and, uh, we had belly dancers and all kinds of people that would just pull pranks on on people. And so after I'd been in business, I think 4 or 5 years paying these contractors per job, I didn't have to pay a belly dancer. If we didn't have a belly dancer job for three weeks, I didn't have to pay. Uh, it was they were hers, all hers at that point. And so I get a letter from the state wanting an appointment with me where they wanted to come in my office and check my records.

[00:08:43] And so I agreed, and they came in and there was this bitchy little old lady. She was just a, you know, a c u n t, basically. And, uh, she comes in and has given me all kinds of crap that says that all of these people I had working were employees, and that I'm responsible for all the back payroll taxes for five years, which would have been, I don't know, hundreds of thousands of dollars. And I'm sitting there thinking, wait a minute. I checked this out thoroughly when I started this business, and because I had come from I've already been in business my whole life. I had a rental business. I had a nightclub that were all employees except for once in a while somebody would fix the air conditioning or something. So I knew what payroll taxes are and all this stuff. And I know what employees are. Had to be there at a certain time, make pizza, serve drinks and all that stuff, and then they'd leave at a certain time. That's an employee. But all these people were contractors. And now. A lot of times people yell at you for hoarding stuff or being a pack rat. Well, in Washington, D.C. at the time, I don't know if it's all electronic now, but I haven't been there for a long time. But they had a magazine called The Washingtonian, and in it, in the back was a bunch of classified ads and some little display ads and classifieds and love, love ads and all this stuff.

[00:10:13] And the late I had saved these over the five years, there was like, what, 60 of them in a stack in my in the side of my office. Every month I'd read it, put it in the top of the stack. And so she's giving me all this crap about I owe all this money and all this stuff, and these are employees, not contractors. And I said, I said, ma'am, isn't it one of the criteria for an independent contractor that they work for multiple Companies or have their own company and work for multiple clients. Isn't that? And she reluctantly said, yes, that's true. I said, well, let's go over here to this stack of magazines. I opened it up and all the people working for me had their own companies and were working for and had their own clients too. Whenever I call them for a job, they'd be working under prank masters thing. So. Oh, was she pissed off? And she she put her, you know, smacked her, you know, briefcase together and was pissed off and left. She thought she was going to go back to the her office with a big couple hundred thousand dollars from some dipshit like me, and she got it stuck right up her fucking ass, you know? So so I'm getting passionate about it because they will stick you.

[00:11:33] They will stick you these government slugs that never did a thing in their entire life want to take money from you, your hard earned money. And I don't mind, you know, if it's a law that's a whole loads of people have passed, even if I don't agree with it, you know? Okay, that's fair. But when you come in and try to screw somebody that's doing it correctly and how much they paid her to drive down there from, I don't know, the Capitol or wherever the hell she came from, and then spend four hours trying to screw me and then leaving with nothing. Good for her. The little, you know, whatever. Okay. So, anyway, I don't want you to get in that that mess. So you got to make sure that whoever you're hiring is an independent contractor. Either has their own company and working for other people. You're not paying them an exact same paycheck every week or two weeks or however you pay and that they're here, you know, here or there. And the other. It's not a constant thing where they're under your control. They have to have their own equipment. They pay their own taxes and insurance. You don't. I mean, you got to make you can't make sure that they're actually doing that, but you pay them and then you issue a 1099 at the end of the year.

[00:12:55] So it kind of puts the world on notice that you paid them this amount of money. And if they don't pay their taxes on it, that's on them, not you. Now, if you were trying to pretend they're a contractor and they're really an employee, well, that lady would have left with a, you know, with me owing a couple hundred thousand dollars. All right. So you got to be careful with this and stay out of deep doo doo and make sure if it's a contractor there for this job, that job and that job, not a continuous work for you, you know, 9 to 5 every day and be under your control. So that's my deep doo doo story. So so that's anyway what's best for you. Well, I don't really know if your work is so heavy for you and constant, you may want to go employee route even part time so that there's some continuity there. And you know, you're you got somebody to call, you know, where they are at a certain time. You're not stuck waiting for a week for a contractor to get to you. If that's the kind of situation you're in, you can't wait a week. But if you have occasional work, especially if it's way out of your your competence level at the time, like if I have a broken down computer, yeah, I can do a little bit of stuff, but I mean, it's out of my league.

[00:14:23] And so I got a call for help. Now as I go, I learn more and more and I can do more stuff myself. But and I told you that on the self-sufficiency episode, I think the last episode. But if it's something way out of your league, you got to hire somebody to do it, and that's going to be a contractor. And so it's not going to be a normal thing where they're under your control. They're going to bring their own tools or their own diagnostic equipment for their computers, or they're going to bring their own knowledge, specialized knowledge, and then you send them on their way with their pay, the pay you paid them for that job, and that's the end of it. All right. But keep good track of all this stuff, because I think the I think currently it's if you pay somebody more than $600 a year, you got to do a 1099 again, check with your tax advisers and your lawyers on all this stuff. I'm telling you, but I'm just telling you I had to face this over my entire 47.5 year business career. All right, that's my story, and I'm sticking to it. Check out my mentor program for that kind of advice and a million things more at GreatInternetMarketingTraining.com. And I will catch you on the next episode. See you later.