Switching From Contractors to Employees

Here are some things to consider when your business' growth is on the rise and it makes more sense to build a team of employees.

When you first start out on your own, you may be reluctant or financially unable to invest in employees. It’s pretty ordinary for business owners to start out with working with different agencies to fill ‘department’ needs or an individual contractor for a very specific function. To develop your own brand, you need to go slow and forge strong relationships and trust in time. Here are some things to consider when growth is on the rise and it makes more sense to build a team of employees.

Legal Protection & the Employee Handbook

You may not want to, but an employee handbook will be necessary to build to protect your business model, production, and brand. It is necessary to provide this to the employees so they have a binding reference to what they are responsible to adhere to. This should be signed and filed for each employee.

PTO, Health Insurance, and other Employee Benefits

When you ask a contractor to become an employee, they are gaining some security and consistency, but may lose flexibility and freedom. Benefits are what really draw them to becoming employed – set sick leave and vacation earned, basic health insurance at the minimum, stocks and retirement, and even reimbursement opportunities for internet/phone/travel/food!

Payroll & Taxes

When you have contractors they are typically responsible for their own taxes and just distribute the check. However, once they are employed, most of the tax burden and prep will fall into your hands. This is when hiring an accountant or CPA to handle the payroll, taxes, benefits, and related software to support the business and staff. There are tax laws per state that relate to businesses depending on their size and revenue. Businesses are responsible for unemployment taxes as well.

It varies by owner and business, but it is important to evaluate which is better suited for your requirements, an employee or contractor. Whatever route you go, know that there are resources and support agencies that can help when you need it most!


Picture of Michael Callahan

Michael Callahan

CEO of Intentional Accounting

Financial Advice

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