Should I Hire an Employee or Independent Contractor?

If you run a growing business then you’ve probably already found the need to get help carrying the workload, or soon will. Almost anyone will tell you that you should avoid giving away equity in the company (unless there is a really good reason) so the best options will be to hire employees or hire independent contractors.

Although you can pay an employee or independent contractor to do the same type of work there are key legal differences between the two. It’s important that you understand the distinctions and choose the option that will be most beneficial to your business.


Perhaps the biggest benefit of hiring an employee is that the employee-employer relationship affords both of you much more security than you’ll get when hiring an independent contractor. Employees are covered under various state and federal laws whereas a contractor is not. If you hire an employee than you have much more control over where and how work is performed because your relationship with an employee is much more exclusive and binding. That comes with pros and cons of course.

Hiring an employee requires jumping through more hoops because the hiring practice usually involves an application and interview and, once hired, more information is required because you will be responsible for reporting payments during the tax year on a W2.

Other considerations also come into play, such as workers compensation, benefits (pension, insurance, etc.), paid vacations, regular paychecks, and meeting minimum wage requirements. While that might seem like a lot to take on, it can often be worth the work because these employee benefits make it much more likely that you retain employees for longer terms and the nature of your legal relationship means that there is room for their responsibilities to evolve as time goes on.

Independent Contractors

Independent contractors have a much less stringent relationship with those for whom they do work. If you hire an independent contractor then the agreement made is specific to the job they are performing and will set a specific payment amount. You cannot expect a contractor to do anything not specified in the signed independent contractor agreement.

The big benefit to independent contractors is that you don’t have to worry about their taxes (issuing a 1099 is required for payments exceeding $600, but that’s it), clearing minimum wage requirements, providing benefits and so on. In many ways this arrangement is simpler: you agree to pay someone to perform certain work and your legal relationship does not extend beyond that agreement.

One drawback to independent contractors is that they will be under no obligation to continue performing services after the terms of a specific agreement are complete. So if you are looking for help on a responsibility that is a crucial and continuous part of your business then it can be risky to delegate that to an independent contractor.

Call J. Cutler Law Today

At J. Cutler Law, we offer free consultations for you and your business. We draft employee and independent contractor agreements and can advise on the best course of action in your specific situation. Call us today for a free consultation at (801) 618-4469 or contact us online.

5 Things You Should Do To Keep Your Independent Contractor Status

In the last few years, the IRS has begun cracking down on mislabeling independent contractors. The IRS' motivation for auditing independent contractors is fairly obvious - employees generally pay more taxes than independent contractors. Thus, if you file taxes as an independent contractor, but the IRS determines you should be reclassified as an employee, you'll likely suffer some negative tax consequences. Not to mention your client may even be forced to hire you as an employee in order to continue working with you.

For these reasons, and to comply with IRS rules, you should take every step you can to maintain your independent contractor status. Below are five guidelines, that if you follow, will help you pass an IRS audit as an independent contractor.

1. Control "How" You Do Your Work

The biggest factor that the IRS takes into account when determining independent contractor status is whether you have control over how your work is done. Employers typically have the right to tell their employees what to do and how to do it. Independent contractors generally have freedom to do their job however they please.

In other words,  a client may require you to produce a specific result, but your client should not be able to tell you how to do it. You should be free to go about producing the desired result in any manner that you see fit.

To show that you are in control of your work, you should not be trained by your client nor should you ask for instructions on how to do your job. You should not be told the hours that you should work (although you may be given a deadline for completing your job) and you should be able to decide where you work (unless the job requires you to work at a specific location, e.g., a construction site). Simply put, you should be your own boss and that includes being able to hire and manage assistants to help you complete the job.

2. Portray Yourself As An Independent Business

You should take steps to show that you are independent from your client. For example, you should create your own business entity instead of working under your own name and you should maintain a separate bank account for your business. You should also carry business insurance and never accept employment benefits such as paid vacations, paid sick leave, health insurance, or retirement benefits. 

3. Take On The Risk Of Loss

An independent contractor's profits should be independent from his or her clients' profits. An employee generally has no risk of loss and is guaranteed a wage as long as he or she is performing work. In contrast, an independent contractor may profit more or less on a job depending on the whether the expenses for that job came out to be more or less than expected. The best way to show an opportunity for profit or loss is by charging your clients a set price for a specific project rather than billing by the hour.

4. Offer Your Services To Everyone

Independent contractors are generally available to the public and not just one person or company. The IRS will look to see if you offer your services openly to your market. To show that your services are widely available, you should, at a minimum, obtain business cards and maintain listings in business and telephone directories. You can also set up a website, create advertisements, distribute promotional materials, and attend networking events. The more clients you have in a given year, the more likely the IRS will view you as an independent contractor.

5. Use Independent Contractor Agreements

Although a written agreement alone won't prove your independent contractor status, it is helpful to demonstrate that you and your client intended to create an independent contractor relationship. The agreement should make clear that you have the right to control your work, that you carry the risk of loss, and that you are an independent contractor and will file taxes as such.

There is no bright line test that the IRS uses to determine independent contractor status. Each determination is made on a case-by-case basis after weighing several factors. However, if you take the five steps mentioned today, your chances of being reclassified as an employee are slim. To be sure, you can always schedule a free consultation with J.Cutler Law to go over your independent contractor status.


A Utah voting leave law that employers and employees need to know


With election day coming up on Tuesday, November 8, 2016, both employers and employees should be aware of a Utah law regarding the right to leave work to vote during an employee's on-duty hours.

Under Utah Code Ann. § 20A-3-103, each employer must allow any employee to take up to two hours off work, between the time the polls open and close, in order to vote. The employer must also not deduct wages or salary because of this absence.

To be eligible for this leave of absence, the employee must apply for the leave before election day and must not have three or more consecutive off-duty hours between the time polls open and close.

This year in Utah, the polls are open from 7:00 to 7:00 so that means if you start work after 10:00 am or get off work before 4:00 pm (or otherwise have three consecutive hours off-duty when the polls are open) you are not eligible for this leave of absence.

Furthermore, although the employer may specify the hours during which the employee may be absent, the employer must allow requests for leave of absence at the beginning or end of the work shift. In other words, if the employee works 9:00-5:00 and requests to get work off to vote from 9:00-11:00 or 3:00-5:00, the employer must allow this.

An employer's failure to grant leave to vote, provided the employee meets all of the mentioned requirements, is a class B misdemeanor.

Whether you are an employer or employee, it is important to know and understand all of your rights under Utah's employment laws. Consulting with a knowledgeable employment lawyer on a regular basis can you help stay on top of the ever-changing employment laws.


Does my business need an employee handbook?


Short answer, yes. Every business that has more than one employee should have an employee handbook. A well-written handbook describes the expectations and legal obligations of both employer and employee. This can help avoid potential issues and arguments regarding pay, benefits, disability, sick leave, overtime, etc.

A comprehensive employee handbook typically covers employment policies such as:

  • Anti-discrimination polices
  • Compensation
  • Work schedules
  • Standards of conduct
  • Safety and security
  • Computers and technology
  • Employee benefits
  • Leave policies

If you own a business it is critical that you at least have a standard employee handbook for all of your employees. If you're on a budget, there are standard form and do-it-yourself employee handbooks available. However, these handbooks are not designed to meet your specific needs and company policies and may not be up-to-date with the latest employment laws and regulations. For this reason, it is recommended that you hire an experienced employment attorney to help you draft a fully customized employee handbook.