The Basics of Hiring
So the basics of hiring. What we're gonna talk about in this section is the difference between employees and contractors, because that's the biggest question that comes up with just talking about employees, and help in general. As well as this issue of hiring expertise. And we're gonna, you're gonna start to think about which one's right for your business, in this section nothing's gonna seem crystal clear, in the next ten minutes. But we're just talking about the broad concepts. So everyone's probably heard of an employee before, and we've heard this term contractor, but you may not really be familiar with what's what, and again this is a situation where I'm gonna show you the hand out, but I'm not a legal person. We're gonna chit chat about it, but if you're in the trenches in your business, and you have a specific case and you really need help deciding which is which, this is where you'd wanna hire an attorney for an hour, who's a professional who would help you and give you the adv...
ice. But just so we can start thinking about it. So in general, an employee is someone who works for you on a long-term regular basis and they have very little control over their own work environment, their own situation. A contractor is like a freelancer that you would hire short-term for a task, and where it starts to get tricky is this this middle situation where you've worked with a freelancer a lot, and they're doing super regular work and do they count as an employer, contractor, employer or freelancer? So we're just gonna talk about some of the questions, let's say, someone would ask you if you're trying to decide between the two. And ultimately, you're gonna have to check it out for your own business. So in general, when someone's a contractor, when they're coming in working for you for your business they're not subject to like, these labor laws, right, so you don't have to pay them overtime, you're paying them to do a task, or an hourly rate. If someone was an employee, for example, you can't require that they work more than X number of hours in a day. You have to provide them with a certain number of breaks, da-da-da-da, those sorts of issues. A freelancer, or a contractor, basically everyone assumes that the freelancer is running their own business, they're in charge of making sure that they're safe, it's not your responsibility to make sure they're safe, right? A great example is like, if you go to a yoga class, you're hiring a yoga instructor for an hour. You're not responsible for making sure they've taken their breaks, you're hiring them in a very temporary relationship, and it's up to them to run their business, and make sure they're taking care of themselves. Withholding taxes, so, if you hire someone as a contractor, again, they are self employed, it is their own business to take care of their own withholding taxes, all of those things. Super different from an employee, employer relationship, where the employer is responsible for making sure you've withheld the taxes, social security, payroll, all that stuff that like none of us wanna deal with, except for like the freelance tax people out there who are watching. Get so much business from all of us, you don't wanna deal with it. Documentation, so, for a freelancer, if someone works more than $600 worth with you, you are responsible for collecting a W-9 from them, getting their tax payer ID, name, and basically you just send it into the IRS, super easy, takes you ten minutes. If someone was an employee, now you're responsible for reporting that to the IRS, doing all of the withholding, but there's completely different forms for doing that sort of situation. And that's also the reporting requirements. So, a contractor can be discharged at any time. So basically, if I wanna hire you to do my flooring, and you come and you do my flooring, and I'm like, oh my gosh, this flooring looks awful, boom, you're out. And basically that's just terminating this contract we had about doing some flooring. I don't need to say I don't want you to do the flooring in my other bedroom, it's a very temporary relationship we had. If someone's your employee, you can't just say, "Hey Jim, bounce." You know, like, I don't need you working anymore. You have a contract that spans a long period of time, and there's laws about certain amount of notice, a reasonable reason for termination, right. So when you're thinking about this as a business owner, a freelancer is sort of much lower risk, right? I could hire someone to like, fill my water glass, and then if I can't afford them next month, I can just be like, "Sorry, I'm not hiring you "to fill my water glass anymore, "because I can't afford it." And that's fine, you didn't enter into a very long-term agreement. For paying a contractor, and this is a pretty important determining factor, from a legal perspective, a contractor is paid hourly, daily, weekly, whatever, or for a completed project. So you could hire an illustrator, I'll pay you X amount for the logo. Or I'll pay, you know, a cleaner is in this situation. I'll pay you whatever to come in for the day, and clean my house. And that's very differently from an employee who's paid hourly or a salary. So if you were to go to an attorney and ask them, "Is this person a contractor, or an employee?" This is one of the sort of questions they'll really ask you. Can someone just be paid a fixed fee, and then they're gone, or are you involved in their regular, reoccurring salary. So, and another factor that plays into that, is how much of the person's income is coming from you? Right, so, most of Jim's income, I would assume, comes from doing Creative Live stuff, right, he's a regular employee, he's not like actually being a host for like 20 other companies, you know? This is his full time gig. If I hire an illustrator, I'm a hundredth of what they're getting paid. They're also doing this job for countless other people. So a bit about payment is also what percentage of their income comes from one person, as compared to lots of different people. Payment dates, a contractor you pay them when they finish the job. You might pay them, and that's when like an invoice has been submitted, so maybe they submit a weekly invoice, but you're paying them for a fixed thing. I had someone package eyeballs for me. They did it, and putting them in baggies, very tedious. And I paid them when that job was completed, right, so there was a finite invoice sort of situation. An employee is paid on a regular schedule that remains unchanged. So like, it doesn't really matter what the company is going through, that employee needs to be paid X amount regularly. Usually, by a software, or staff. And that's another, if you're getting into the employee situation, consider hiring software. So this is a, just like the lay of the land. So I think it's really important to point out that you as a business owner can hire a freelancer, and there's not a lot of restrictions about it, it's kind of exactly what you would expect. It's a much more casual relationship. But we're going, as we talk about our businesses growing, we're gonna keep an eye on what it means when someone becomes an employee, because that is like a next step, and you need to be aware of it, 'cause it can be super slippery. So we're gonna talk about a case where someone hired someone more and more and more regularly, until a friend was like, "Psst, that's an employee now." And you're like, "What, oh my gosh!" You know, you're just getting in these orders, and you have someone helping you ship orders, and before you know it, they're there eight hours a day. And that's an employee situation. Yeah?
Can a founder who is not getting a regular paycheck because of the stage of the business technically be a contractor?
I have absolutely no idea. That is such a great question to ask someone who is a professional. Yeah, I actually have no idea, it's a great question. And that also plays into what is your structure for your business, right? So are you an LLC, are you a sole proprietor? And how you as a founder are paid differs whether you're a sole proprietor or a corporation, so, like just, this is... You're reaching the depth of my well. If you're a corporation, you as a founder are paid, quote unquote, a paycheck that gets reported on your personal income to the IRS, and the corporation files their own taxes, right, and that's very different from a sole proprietor whereas if you do like, cash register accounting, you're basically earning the proceeds. So, hire someone. (Stacy laughs) I have no idea! Another really important determining factor I haven't put in here is where the contractor works. So if they have control of their work environment, so if I give you some things and say package them at home, bring them back to me when you're done that's very much the freelancer is in charge. They can do it at home, they can take two hours, they can take four hours, they bring it back. If you're saying, "Hey, I need you to come in, "I need you to do this exactly like this, "I'm gonna tell you exactly how to do it, "and you can leave at 12 o'clock." That starts to be much more like an employee situation, and so those are the sorts of, you just wanna like put it back here for thinking about as you start to hire help. The good news, and the bad news, is that hiring a person is the most difficult part, and it can actually take a long time to find the person that's right. You wanna make sure the person's the right fit, you wanna make sure that their schedule works with you, and you have to remember, the freelancer that you're trying to schedule has their own life too, right. So you may really want someone who comes in at 12:01 and works for five minutes, and like, you know, leaves, but they have to drive to you, and they have to drive home. Like, certain things are just never gonna work out. So as you're thinking about what you need, I want you to also think about schedules, and what the other person's life is like. It's definitely easier to hire someone who does something for you once a week, than it is to find this magical person. You only need them once every six months, but then you need them for 12 hours, right, because that person probably has other jobs, and they might not be free for you. So start to think about, are there ways that you can break these tasks down into regular things so you can have someone come by regularly? And especially for people who run seasonal businesses, like I sell a ton of stuff around Christmas time. But I start planning a lot earlier, because there's no magic fairy who's like, free Thanksgiving weekend to come over and do 30 hours of work, right? People are busy. So, I portion it out, right, a little more in advance. I start in the summer getting stuff done to prepare for this giant Thanksgiving weekend. So for example, if you're gearing up for the holidays right now, hire help this summer. There are tons of people who are very flexible and available in the summer, like students, to sort of plan out for your business. Alright, the last thing I wanna talk about in this section is hiring tasks, versus hiring expertise, and this is a reoccurring theme that we're gonna come back to again and again. At almost everything you need help with, you have a decision point to make. You can hire someone to just do what I say, or you can hire someone who's an expert in that thing, and will wow, really do it. So, an example, this is... We just redid our bathroom. And we chose to go with a renovation company. And the difference that you... So like, the other option is just like hiring a dude to put in some tile, right? So I could have saved some money by saying, "Hey, Bob, can you put in this tile?" Okay, "Hey Jim," Sorry, I just picked a random guy name, sorry. "Can you put in the counter? "Oh, Freddy, can you do my plumbing?" Right, I could have pieced it together myself, but what would have been missing is sort of this expertise level. So I hired a renovation company, and they came in and they said some things like, "Oh, except your lighting's kinda funny. "You want this kind of bathroom? "You actually need to like..." They have this whole package thing. So we're gonna talk about, and usually this means the cheap way versus the expensive way, so we're gonna be talking about this the whole time and that's part of what you need to balance. So logos, you can have someone who gives you a logo that looks perfectly fine, and isn't terribly expensive, or you can hire a person who also looks at your brand, and says, "Oh, I know you thought an owl "was cute for your logo, "but this is how you need to position with your best market, "and this is how I would design it." Right, so this is what we're talking about the whole time with do you wanna hire someone who's gonna come and do exactly what you tell them to do? Or do you need to get advice on top of the actual task, to sort of take your business to the next level?