The IRS says that the number one factor to determine the difference between an independent contractor and an employee is the amount of control you have over the individual – including when and how the work is completed for a specified duration. If you have that control, then the individual is most likely an employee. However, if your control is limited to deadlines and basic final product expectations, with no real control over the ‘how’ of the actual execution, the individual is likely an independent contractor.

Some other things to consider relate to your financial and compensation agreement with the individual. Do you reimburse expenses? Train them? Supply tools, supplies or software? How about a pension plan or health insurance? The individual again is likely to be classified as an employee.

Though the classifications seem straight forward, there’s no shame in having questions, as confusion does arise. But it’s important to ask, rather than find out the hard way. Why? According to the IRS, misclassifying an employee – as an independent contractor instead of an employee, for example – can lead to some heavy penalties, including past employment payroll taxes, including Medicare, Social Security, as well as other fees for not paying the taxes from the start.

In addition, independent contractors are not covered by federal overtime law provisions, and therefore, are not entitled to overtime pay. Should employers unintentionally or intentionally make this misclassification, when the worker fails to meet the requirements of an independent contractor, they are considered an employee and may be entitled to overtime pay when working more than 40 hours a week.

Starting to see how important it is to know the difference? If you have questions, we’re here to help. As HR experts with years of experience, we’ve seen it all. Call ELEVA Solutions today at 305-232-0832!

• Hiring an in-house team involves a multitude of recurring expenses such as salary, taxes, benefits, training, recruiting, rent/space, payroll taxes, workers’ compensation and computer hardware/software.  When you outsource, you free yourself from the majority of these expenses!
• For the cost of hiring one employee, you’ll get a dedicated team of professionals that would be cost-prohibitive in many cases.  By doing so, you may dramatically increase the quality of the personnel that you will be able to afford as a result.

2. Outsourcing increases efficiency (companies that do everything themselves have much higher operational, marketing and distribution expenses);

• Outsourcing providers have been serving clients for years and as a result, they have it down to a science.  Your people’s efficiency will increase.
• Utilize the latest technology and obtain the benefits without having to invest the dollars to purchase new technology.

3. Outsourcing providers assess and manage risk for you;

4. Outsourcing helps small organizations act “big”, giving them economies of scale, efficiency and the expertise that large organizations enjoy;

5. Outsourcing focuses the workforce on activities that generate profits:

• Reduce your involvement, people drama and increase your time to do other things!
• Focus on what you do best – because someone else is thinking about people and compliance issues, you’ll be freed up to do what you do best!
• Quality people controls give you peace of mind.

6. Single HR point of contact (Your On-Call, HR Director);

7. Fortune 500-level expertise from recruiting to people management to compliance;

8. On-demand resource pool of specialized HR capabilities;

9. Proactive process methodology to mitigate risks and improve employee performance; and

10. Outsourcing aligns HR, people activities and the organization’s business goals.

• The highest number of discrimination charges (99,922) in its history, since its founding in 1964.
• Class-action investigations/suits related to systematic discrimination have doubled over the previous year.
• The agency recovered $319.3 million in damages for injured parties, a 9.2 percent increase over 2009

And this is only from one agency. Other agencies which govern laws related to compensation, immigration reform and control, and employee benefits have reported similar increases. For example suits under the Fair Labor Standards Act (FLSA) have cost some very large and well known corporations millions of dollars in highly publicized cases. The financial cost incurred does not only come from litigation, but also damage to the companies’ reputation which inherently results in lowered profits.

The most effective way to protect yourself is to conduct periodic audits of all of your Human Resources functions as soon as you have your FIRST employee. Thereafter, it is a good idea to, at the very least, conduct an audit whenever one of the following occurs:

• Significant process changes or reorganization
• Changes in federal or state law
• Significant increase in hiring

This way, you can ensure you are in compliance with all applicable federal, state, and local employment laws and can start off on the right foot in regards to best practices and strategies governing your human capital. We all learned from our first blog “What is Human Resources” that a company’s human capital is not only their largest investment, but also their driving force.

Our Human Resources Audit is a systematic, comprehensive analysis of an organization’s human resources activities. The audit includes a review of your company’s policies, practices and documents to identify areas of potential exposure and offers numerous practical recommendations for improving overall human resources effectiveness. In doing so, we can assist in determining how to strategically align HR practices with business objectives.

Some statistics:

• 1/3 of job applications and resumes are embellished, distorted, or otherwise falsified (CNN.com, 2000)
• 30% of small business failures are the result of employee theft and dishonesty (United States Chamber of Commerce)
• Almost 1/4 of all job applicants have criminal records or test positive for illegal drugs
• Millions of dollars are paid out every year in awards for harassment, negligent hiring, workers compensation and other legal claims
• Hiring illegal aliens can result in fines up to $10,000, with a significant increase in the last few years.

A properly designed and implemented Human Resources function would help ensure that your company does not become part of these statistics. It will:

• Help business owners and managers find more time in their day by ensuring consistency in messages that are communicated about how things are done and reinforcing the company’s vision, mission, and values.
• Save the company money through reduced turnover, decreased complaints and lawsuits, and improved productivity.
• Allow the organization to respond quickly to change resulting from internal or external factors.

When incidents occur and there is no system in place to assist, the consequences have a greater negative impact on a small business as opposed to a large one, and they always cost the company time and money. A small company needs everyone working efficiently and effectively as a team because there is no one to fill in the gaps when things go awry.

Protect your business and ensure your longevity and growth by implementing a Human Resources function in your small business.

Check out our blog next week for an overview on how HR audits can help you prevent & root out these issues.

Have a great week!

-“So, you hire and fire people, right?

-“Oh, you’re the one that does our paychecks, that’s right!”

While these statements are both true, human resources is actually more than just an administrative function within an organization. In essence, Human Resources Managers are responsible for translating an organization’s mission, vision, and values into a corporate culture and managing its human capital to achieve business and organizational goals. This is done through several key functions:

• Recruitment, orientation, and on-boarding
• Organizational Design/Development
• Change Management
• Performance Management & Employee Relations
• Workforce analysis & Data Management
• Compensation, Time, & Benefits management
• Training & Development
• Cost planning

Each one of these key functions ties in to the operations of a company and when effectively integrated, can provide significant economic benefits, by reducing costs and increasing the return on investment of their human capital. They are strategically implemented through a system of policies and procedures that are in line with a company’s overall business strategy. Human resources management is therefore clearly an integral part of the operation, growth, and success of any business-small or large.

Why, you ask?

Check our blog next week for an overview on the importance of Human Resources for small businesses.

Have a great week!