Small businesses often work with a reduced pool of resources, so figuring out how to classify your employees and contractors to maximize tax benefits is crucial.
Full-Time Employees – The Basics
A full-time employee requires you to pay for Social Security, Medicare, unemployment, as well as all required federal and state taxes. Depending on the number of hours the employee works, you may also need to provide healthcare benefits. You can also be your own full-time employee if you’re the sole employee of your business. It may seem odd to put yourself on the payroll, but doing so can offer tax advantages. You’ll want to work with your CPA to figure out the solution that’s best for your business.
Independent Contractors – The Basics
For a small business that uses employees as needed, also known as independent contractors, you pay for the services as provided. Each contractor should fill out a 1099 form, which you can provide to your CPA as proof of expenses. Using independent contractors removes the burden of knowing employees are counting on you for their livelihoods.
What’s Right for Your Business?
Every small business is different, so deciding whether you want or need full-time employees is dependent on your company structure. Many small business owners don’t want the responsibility of full-time employees, opting to use contractors as needed. Conversely, some small business owners realize they need consistent full-time support to handle their workflow. The amount of money you spend on additional overhead — office space, supplies, transportation, and so on — for your business will also factor into the decision.
Are you a small business owner, or do you work for a small business? What classification systems have been more advantageous for you? Connect with us today.