What an exciting time in your business, if you have gotten to the point where you need to add to your team!
Sometimes you can hire contractors (to outsource some work) but sometimes it makes better sense to hire an employee. We’ll go over the differences between ‘independent contractor’ and ‘employee’ from the IRS’s standpoint, so you have all the info you need to make the right choice for your business. Next week, we’ll talk about the money side of hiring one vs. the other.
The IRS has a 3-factor approach to determining who is an independent contractor vs. an employee. Those 3 factors are: Behavioral Control, Financial Control and Relationship of the Parties.
A worker is considered an employee if the business has the right to direct and control the work performed, even if that right isn’t exercised.
These are examples of behavioral control that would indicate the worker should be an employee:
So you’ve read or maybe listened to Profit First, by Mike Michalowicz. Or you’ve heard about it, but you aren’t much of a reader and you’re looking for the cliff notes version.
The main idea is to take your profit first, instead of waiting until year end when you file taxes and your accountant tells you what your profit was. You basically budget your profit into your business and work backwards from there. Profit First is essentially the envelope method of budgeting, but for business, and using bank accounts instead of envelopes—because you can’t run a business with cash this day in age.
The 5 envelopes (bank accounts)
You will start by opening 5 bank accounts for your business:
Profit - this is where you will transfer and keep your profit
Owner’s Pay - this is where you will transfer the money you pay yourself
Taxes - you guessed it, this is where you’ll transfer the money for the tax man.
Operating Expenses (Opex)...