Hiring Employee’s Vs. Contract Labor PART 1
Owning and operating a small business requires many decisions. The small decisions may be easy to make and perhaps even fun. Like what computer system to purchase, picking office furniture and supplies, and creating business cards. However, some decisions are much bigger, like whether to run your business from home or to move into an office or retail location, whether to become incorporated or stay a sole proprietorship. And another big decision is whether or not to hire employees or use contract labor.
I myself have done both and I can tell you there are definitely pros and cons to both. If you are considering either, then the chances are that your business is thriving and the next step is to grow your business to the next level. There are many things to think about when entertaining the concept of employee vs. contract labor. To help make the decision, it helps to know what goes into hiring an employee and also what is involved in hiring contract labor.
In part 1 of this article, I’ll talk about the employee route. The hiring process can be much bigger than you realized. The entire purpose of the hiring process is to exchange enough information between prospective employee and the hiring business that allows you both to make an informed decision about whether the employment relationship is a good one or not. To start this process you will need to define your business need and create a job description. The job description should define essential functions of the job, special skills required, special education, a job title, and whether or not the person will be exempt or non-exempt.
The next step will require you to advertise the position. Some people choose to use their local newspaper or online local classifieds. Others advertise within a Chamber of Commerce or other organization. And some use online job search locations like Monster.com or even craigslist.com. Whatever the method of advertising, with unemployment reaching an all-time high, you are bound to receive a lot of resumes for potential employees. And although the first few applications that start coming in either by fax or email are exciting, it can become laborious in no time at all.
Next is the interview process. You will want to write out an interview form with the questions you intend to ask to the applicant. Make sure your questions are limited to topics directly relevant to the job performance. Stick to your form and note the applicant’s response to each question for future reference. By sticking to this form you created in advance it will be much easier to keep from asking prohibited questions. You can not ask questions like “Are you disabled?”, “Do you have a medical condition that would interfere with your performance?” You can not ask questions relating to a person’s age or marital status, such as “Do you have family responsibilities that could keep you from getting to the office?” If you ask prohibited questions and end up not hiring the applicant, you could be facing charges of violating the Americans with Disabilities Act or some other antidiscrimination law.
When you think you have a valid candidate, you may want to do “Pre-Employment Screening”. If you are going to use a test, the test must be “validated”, or shown by statistical or other evidence to be good predictors of job performance. You also must keep records on the impact of your testing procedure. You may also wish to do a background check. You would only do this once you have a short list or a tentative candidate selected. Your background check may include, calls to references and prior employers, ordering a consumer report, checking for criminal convictions, or obtaining the candidates driving record, and possibly a drug test.
If you decide on a candidate you will need to make a written offer. This way you will avoid any misunderstandings about the offer and avoid disputes in the future. If you are an at-will employer make sure you indicate that in your offer of employment. Be sure and indicate the position title, beginning salary, starting date and time, and indicate that you have included either an employee handbook or a written copy of the company rules. Make sure to indicate a date that the offer must be accepted by. Have the employee sign the offer of employment and date it showing he/she accepts the offer.
Once you have made the decision to hire an employee, you need to keep in mind all that it will require of you. You are now bound to the “New Employee Regulations” stipulated by Federal and State laws. Some of those requirements involve, obtaining evidence of the employee’s right to work in the U.S. (Form I-9), IRS form W-4, obtain personal information like birth date, emergency contact, drivers license, and so on; collecting information for Form EEO-1, delivering copies of your company handbook, obtaining a signed arbitration agreement, and obtaining a signed confidentiality or non-compete agreement. All of this requires a tremendous amount of time on your part and excellent bookkeeping. With the amount of work and time involved , it would benefit having a human resource department. For this reason, many employers decide that it is too much work to hire an employee and decide to opt for the less complicated method of retaining contract labor to help when the workload is heavy. In Part 2 of this article, I will touch on the details of hiring contract labor.