Is It Time to Hire Some Help in My Business? (How to Hire the RIGHT Way)

If you're a growing business owner, then it might be time in your business to hire help. However, W-2, 1099, W-9, independent contractor, payroll, all these terms can be really confusing and overwhelming when all you're trying to do is have someone step in and try to take some of the load off you as the owner in your business. I'm attorney for online business owners Brittany Ratelle, and today we're going to talk all about hiring your first contractor or team member in your business and how to make sure we can do that legally in a way that you could protect yourself and your hire and the relationship that you're setting up to help you move your business forward. Let's get into it. As a reminder, while I am a licensed attorney, I'm not your attorney. This is not an attorney-client relationship. This is not official legal advice. So make sure if you have any questions, especially as we talk about misclassification, about how this impacts you in your jurisdiction, make sure you reach out to competent legal counsel that can help you and answer any questions you have. All right, you've decided that it's time to hire. Congratulations! This is actually a really amazing new milestone in your business. You're having money that's coming in, you're solving people's problems, you're moving forward, and it probably means that you've been wearing all kinds of hats in your business and you're ready to take a few those hats off and get help so that you can scale and maybe get to the next level of your business. However, it is a problem, and we want to make sure as you move forward in this next territory of having team members, of being a boss, of being an employer, that we're doing it right and we're not running afoul of any state or federal laws as we employ people into our business. Step 1 is we want to make sure the foundation is legit in our business. Now, when I talk about this, I mean that you should have already set up your business, hopefully as an LLC or a limited liability company. If you're still running as a sole proprietorship, and you've registered that with the state, technically you're compliant with your state. But as an attorney, do I recommend this? No, I don't, because you actually haven't set up any legal protection for your business. If you have more questions about this, make sure you check out our other videos all about LLCs and whether you think you need one. So let's assume you've set up your LLC. Let's also assume that you've gotten your EIN or your tax ID number. This is a number that the IRS gives you once you fill out their online form. It's free, by the way, and it basically becomes a new business Social Security number. And this becomes a really important number for you to move money and receive payment from people and also for you to pay other people. So you have the foundation set up. Let's go to step 2. Now it's time to figure out exactly who are you hiring and how are they going to fit in your business. And I really recommend you go through this exercise before you just put up a listing or you start talking to someone about a job. This is really some internal work of yours that you need to do that's going to save you a lot of time as you try to imagine what this role needs to look like. What I recommend is you start making a list of what are you interested in outsourcing, and this should be a list of stuff that either you are bad at, you hate doing, you simply don't have the time for, or it's just not happening because you're overworked. If you can find some of the skills that fit all of these, this is going to be the base draft of your, like, job description. Start to make a list of what those things would be, what those tasks are in your business. In fact, if you can even take a week and kind of make a note as you're going about in your business and doing other things, what are the other activities that you are doing that maybe you don't need to be doing? For example, a lot of my clients that I've helped decide that they want their first hire to be a virtual assistant. Assistant. And this is really common, especially for online business owners. Or maybe they want someone to be a social media assistant. Maybe it's someone that you want to be a photographer or videographer, an editor. Maybe it's someone who helps you with web design if you have a main web presence. Any of these jobs could be really ripe for your first freelancer or 1099 contractor in your business. Next thing you want to think about, are there any specific skills or training that they're going to need to have? Are you looking for people who are familiar with certain types of software? You want to make sure that they know how to navigate Tailwind and Canva and Descript, which is the tool that I use to make my videos, or something else, then make sure you make a note of that. And is this someone that you're going to want short-term or long-term? It's just for a particular project, or is this someone that you see as having an ongoing role in your business? How are you going to pay this person? Is it going to be an hourly rate, or is it going to be a project rate? And that's how you're going to compensate them for their skills and time. That's step 2. Now, once you've taken that list, we're going to go to step 3. This is a really important step. We need to know how to classify our team member. We've sketched out what their role is going to look like, maybe what we need for them. Now it's really important for us to decide how the state and the IRS will look at it is whether this person in this role is really an independent contractor or whether they are a W-2 employee. Those are different things. And so if you've ever heard someone say, I'm going to hire a 1099 employee, that's actually a misnomer. A 1099 employee doesn't exist. Someone's either a 1099 independent contractor or they're a W-2 employee, meaning you put them on payroll and there are obligations that come with you employing them because now this person is probably going to be subject to the FMLA or other state or federal employment laws. Let's look at how are you supposed to know whether someone's one class or the other. It's complicated. Classic lawyer answer, I know, but let me give you some information. There is an IRS test, but the bad news is that it's a 20-factor test. You got it, 20 factors to decide if someone is an employee or not. And just to let you know, the IRS assumes that they're an employee until proven guilty. So they assume someone's an employee if they work for you unless you have the burden of showing them, no, look at all these things, they're really an independent contractor. This complicated this because not only do you need to keep an eye on where are you employing someone, but also where is your person located if they're working remotely. The common law test is the one that's the 20 factors. There's also the ABC test that a lot of states use, or if you're in California, you get a special test thanks to the Dynamex case called AB-5, and it is one of the strictest tests in the nation that has some very specific things. All these tests are for all intents and purposes saying, are you having the manner and means of control of your team member? And if you are controlling the way they do their job, it's more likely that they are an independent contractor because they're not independent. If you have too much control over how they do their job, over their materials, over their time, like if you're giving them hours, you're giving them a dress code, all these things are tipping over, making them look like an employee. And the IRS and likely your state Department of Labor says if it looks like an employee and it smells like an employee, it's an employee. That could be a bad thing if you thought that they were a contractor, and maybe your person even demands and expects to be a contractor. You guys might think that you're on the same page there, but if your state feels differently, then you get audited, you could be subject to back taxes because you've not been contributing to payroll. You could be fined for not contributing to retirement. You could have not been giving them breaks and meeting other employer obligations. And so there's a lot of penalties and some scary things that can happen to you as a business owner if you misclassify the nature of your person. I do want to mention, if you are in California or you are hiring someone, even if they say you want to be an independent contractor and they're located in California, I want you to wise up. In addition to the common manner and means of control test that I just listed, in California you also need to be careful that employers cannot hire contractors to do work that is a core part of this business. And I've had some colleagues of mine that work in California who've been hit hard with this, where people in the event industry, for example, for photography— if photography is doing the same thing as a business owner, and so in California, unless you're putting up some other things to overweight that test, means that person can't be an independent contractor. They're an employee. Yikes. So be careful if you're trying to hire a contractor and they're doing the same thing or a core part of what your business is. The also thing you want to make sure is that a contractor is supposed to have an independent trade, occupation, or business. And if you're someone who wants to be hired out as a contractor, it means you should set up an LLC. You are a freelance service-based business. You invoice people for the things that you do for them, and then people pay you. That looks a lot more to the California government like a real independent contractor relationship. Just some things to put into perspective. And remember, this is a balancing test.. And there's a lot of time and money and a lot of employees who litigate this all the time, especially when someone gets a big audit or they're a larger organization. There is a process in that you can actually discuss what the role is and ask for the IRS blessing, and they'll let you know whether someone's an independent contractor or an employee, but it takes 6 months. If you plan on hiring a whole level of people and you have that time frame, go ahead and fill out that form. That way you can have some reasonability and predictability of how they're going to be classified by the IRS. IRS. Let's talk about step 4. Now it's time to find your team members. Obviously, you have a lot of options here. You can look in your own network, you can post a job listing, you can go on a marketplace like Upwork or somewhere else where freelancers are congregating to try to find someone that you want to bring on as your team member. Lots of different options that you have there, but you'll need to find your person. And then once you do, you want to have step 5. If you hire an independent contractor, you should probably have a contract contract for them. It's in their job title. You definitely want to have a piece of paper, a written agreement and contract that outlines the boundaries and the relationships of how you're going to be working together. And this contract should cover things like how are you going to pay them, and is it going to be a set fee. And ideally, they should invoice you and then you pay them. But how many days do you have to pay that, and how are they going to invoice you? Is it going to be on QuickBooks? Are they going to send you something via email? Especially if you have any expenses. Where I see this a lot especially is working with freelancers who are maybe doing a bigger creative project. If you're working with a web designer or someone else, you need to know, are you going to be paying for stock photography and fonts and software licenses, or is that just all covered as part of their costs? Someone's going to be traveling on your behalf or maybe engaging other service providers to do what they need to do. Is that all built in and baked into what they're charging you, or are you going to be getting a bill for those third-party expenses? Also, in this contract, you should be talking about term and termination. How long you're going to work together, and what happens if you need to break up? What is that going to look like? Since it's an independent contractor, we have to look for the contract to know how are we going to end Scope of services. We want to have a really tight scope of work and know what exactly are they doing for you. What are the bounds of that project? How is that going to be billed? Are there rush fees? Are there design change fees or revision fees? You want to know how many rounds of revision you get. Confidentiality. Now you can have a standalone NDA or non-disclosure agreement, or you can have that language baked into an independent contractor agreement. The ones that I sell in my shop, I go ahead and bake in because I like one is done and I just assume that people want less things to sign in their business, all right? Less chances for things to go wrong. You should definitely have some language in there because independent contractors and team members are going to have a look behind the curtain of your confidential business stuff. They're going to know about your pricing and your vendors, probably sensitive confidential client information, proprietary processes, recipes, formulas, sales figures, editorial calendar. Have I convinced you yet? Get an NDA in your contract. And then IP rights. You want to make sure you clarify, especially for those contractors who are creating amazing content and things for you in your business. You want to make sure all that good stuff is being transferred into your business pot. And the way you do that, copyright law says, is through a writing, like a contract. Contract. So we want to make sure we have that because we do not have the benefit of the work-for-hire doctrine because these people are not employees. We cannot assume and have a default that just because we're paying them, we have the rights to all their stuff. We need to get it in writing, we need to clarify it, we need to protect our relationship there and our investment into what we're paying them to create for us. And then possibly have some sort of non-solicitation, non-circumvention, maybe non-compete. You have to be really careful about non-compete because again, they're supposed to be running their own business and you're not supposed to be controlling the manner and means of their work. In fact, they should be able to do what they're doing for you for other people. They don't have to have other clients, but they should be able to. I'd be really careful about trying to put in any non-compete language. Please make sure you work with an attorney who's licensed in your state and barred in your state before you mess around with any non-compete language. If you see that, if you get some form off the internet and you use it for an independent contractor agreement and it has non-compete in there, X that out, okay? It is not worth it. It's not invalidating your agreement because you have language in there that you're not going to be able to uphold. That brings us to the end of that contract. If you need one of these independent contractor agreements, if you are ready to hire someone and onboard, or if you're at the point in business where you've already hired lots of people and you don't have any of this in writing, I've got just the thing for you. I want you to head over to Creative Contracts, my shop, with your curated agreement, including the independent contractor agreement, which honestly, it's like my number 2 best-selling product because just about everyone I know and everyone I serve with the hundreds of business owners that I've helped are hiring a freelancer first. They usually start with 1099 contractors, and then maybe as those people rise up in their business and get more important, those roles get transitioned into a W-2 employee, and then it cycles again and they hire more freelancers. And then the last step is to make sure that you have your independent contractors fill out a W-9. This is the form that will allow you to issue them a 1099 at the beginning of year. If you need to issue them a 1099, you're going to really wish that you had all the information for you to do that and do it in a timely way. Your accountant's going to thank you. So make sure you have them fill out a W-9 and do it early and often. In fact, I would do it before you pay them, and that will make sure that you get it in your email inbox and have it on file ready to go just in case you need to issue that 1099 to them. Thanks so much for tuning in for this I hope this has been a helpful walkthrough because I'm excited for you to grow your business, to get more people on your team, and having people join you and your vision and your purpose in your business the legally legit way. I'm Attorney Brittany Ratelle. Thanks so much for joining me. Make sure you like and subscribe so that you don't miss out on any of the great tips we have here about starting and scaling your online business.