Deciding whether to hire independent contractors or employees for your cleaning business involves many different factors. Independent contractor and employee are two different types of worker classifications. It can be challenging to know which option provides the best benefit for your business as a whole. Hiring an independent contractor versus hiring employees involves many risks but can also result in countless rewards. Choosing which path to follow will vary based on your business’s size, budget, and preference.
First, before deciding whether to hire an independent contractor or employees for your cleaning business, it is imperative to know and understand the definition of each and the variables that differ between the two designations. According to the Internal Revenue Service, differentiating between an employee and an independent contractor can be determined by examining three separate categories. The three categories to determine the difference between an independent contractor and an employee are behavioral control, financial control, and the relationship between the two parties.
The category behavioral control assists in differentiating between an independent contractor and an employee through examination of the level of control a business has over an individual, even if that control is not enforced. A worker is defined as an employee when the company both directs and controls a worker’s work. For example, to be considered having behavioral control, a business that hires an individual as an employee can enforce when and where that individual must work. In terms of an employee, the enforcement of behavioral control ideally includes a detailed degree of instruction. In addition, evaluation systems such as quarterly or annual business-wide evaluations are another example of behavioral control indicating an individual is an employee. Finally, providing formal or informal training on the job to an individual represents behavioral control indicative of an employee relationship.
A second category that assists in determining employee status is financial control. If a business is directly in control of most or all of the financial aspects of an individual’s job, then financial control is exhibited. For example, investment into a worker’s equipment and control over who services can be provided are two other instances that can show an employee relationship. An employee is typically not responsible for purchasing their own equipment, whereas independent contractors often see many unreimbursed charges. Additionally, employees are typically paid an hourly or annual wage, while independent contractors are generally paid for each job.
Finally, the relationship between the two parties is a third indicator of whether the individual is an employee or an independent contractor. Benefits provided by a business to a worker generally indicate employee status. Additionally, the permanency of the relationship between the two parties plays a significant role in the classification of an employee or independent contractor for your cleaning business. If an individual expects the relationship to be long-term and lasts longer than one project or specified period, the individual will generally be hired as an employee.
Using the Internal Revenue Service’s well-defined conditions, you will be able to determine the pros and cons of hiring an independent contractor versus an employee for your cleaning business. You will want to consider each of the three categories, behavioral control, financial control, and the relationship formed between you and an individual. By reviewing each of the three categories and the pros and cons of each, you can best decide which worker classification would be best for your business.
Behavioral Control
Behavioral control or the employer’s right to direct and control an individual’s work can have several pros and cons. First and foremost, you need to decide how much control you want to have over your employees. If you are operating a cleaning business, will there need to be multiple individuals working, or are you seeking only to hire one individual? Once you have the individual or individuals in mind, do you plan on assigning those individuals to work specific jobs, and will you control when and how they complete those jobs? Let’s say you have a cleaning business for residential areas. If you plan to hire a team of 3 individuals to clean homes, you will likely want to control when each of the individuals begins and ends work. Or will the workers be able to decide on their own how and when they come to work? If you need a team of individuals to work, it is unlikely that you would want each of them working on their schedule to require some direct control over the individuals. This would mean hiring employees would be of a more significant benefit than hiring an independent contractor.
To better understand the pros and cons of behavioral control, you should look at the size of your business and the number of employees needed. Suppose you are a small cleaning business and can hire three independent contractors who are tasked with cleaning one home on any given day of the week. In that case, it may be plausible and more profitable to choose independent contractors if you are comfortable with losing behavioral control over an individual. With your cleaning business, many of the decisions you make will require some sort of tradeoff. In contrast, if you would prefer to have a team of three employees who work the same hours, choosing an employee would be the better option. If you hire three employees and have the business need for it, you can have those three individuals work timed slots to complete three or more homes in a day, depending on the size of the homes. This can result in maximized profits for your cleaning business, which of course, is the ultimate end goal.
Training is another critical element of behavioral control. When a business provides formal on-the-job training for an individual, it usually means that the individual is an employee. Provision of training can prove to be immensely beneficial to your cleaning business. You will likely want to have a set standard for how those you hire clean and what specific actions must be completed. It may be a requirement that all glass is cleaned with newspaper or that a separate rag is used for every different surface. Whatever your requirements, you can indicate them during training sessions. Hiring employees and providing training means that these needs can be fulfilled. Your cleaning business will be able to provide training, and with that training, you can give a list of requirements for employees to follow. This is important because it allows a level of control to contribute to your cleaning business having a reputable name.
Financial Control
Financial control, the second category, also elicits a variety of pros and cons. Financial management is one of the most important categories to familiarize yourself with when determining whether you will hire independent contractors or employees for your cleaning business. First and foremost, financial control is directly related to costs and expenses that your business will incur. Independent contractors generally have what is known as significant investment in their business, resulting in lower supply investment costs to the companies they provide service to. Your decision to hire independent contractors versus employees will have a direct effect on your profit margins. Additionally, how wages are paid and taxes accounted for are all factors that are considered elements of financial control. If you choose to hire employees, there will be a tremendous difference in how your taxes are filed yearly.
When reviewing financial control, consider hiring an independent contractor who will be responsible for their supplies. As a cleaning business, this can have both ups and downs. The upside to hiring an independent contractor providing their supplies is that you will have fewer costs when it comes to purchasing needs for each of your jobs. If you are not required to provide any of the supplies, you can significantly decrease your overall costs. The downside is that an independent contractor providing their own supplies may be more costly than an employee who expects everything to be provided for them. You would need to calculate each to determine which tradeoff would be more suitable for your business. The downside to having an individual provide their own supplies is that the quality of their work could suffer. You may prefer only the highest quality, environmentally friendly cleaning products to be used. Still, as an independent contractor providing their supplies, they may choose the cheapest alternative found at their local grocery store, thus impacting the final quality of their work and your reputation as a cleaning business.
In addition to an individual providing their own supplies comes the aspect of an individual being required to file their own taxes versus the business being required to withhold taxes from the individual’s paycheck. This is a crucial component to consider when deciding if you would like independent contractors or employees for your cleaning business. If you have a small cleaning business and believe that having only one or two individuals who will set their own schedules and provide their own supplies would work, it would be feasible to hire independent contractors. Hiring independent contractors would mean that you are not required to withhold taxes from their paychecks. An independent contractor would file their own taxes and deductions annually. You also would not be required to provide specific benefit packages, and there are fewer legal protections in place in comparison to having hired an employee. Hiring an employee gives the reverse outcome. If you hire employees, you are required to withhold taxes from their paychecks, and certain employee benefits are required. Employees also are entitled to receive a regular wage, and there will be a minimum wage requirement depending on your location. It is essential to keep this in mind because it will impact how you file your taxes at the end of the year. Having employees complicates your taxes and requires a professional’s help.
Relationship Between the Individual and the Business
Finally, the relationship between the two parties comes into play. We know so far about independent contractors that there is a lack of behavioral control and a lack of financial control. Similarly, with the relationship between the two parties, a lack of connection between the two parties suggests an independent contractor classification. When looking at your cleaning business, do you plan to hire an individual for each particular cleaning job, or do you plan to have clients you will serve continuously over time? Determining how long you will need to use the individual will be of the most significant assistance in determining the relationship between the individual and the cleaning business.
It is likely that you will not want to have a new individual for your cleaning business each time you have to go on a job unless you plan on having fewer than three jobs per week. If you intend to have clients who you frequently service, hiring employees may be the better option. If you have independent contractors, you will need to brief them each time on the specifics for the particular job. If you clean a specific home once every week, a set of employees will soon become familiar with that job site and the client’s preferences. If you hire independent contractors, each one will likely have their own style of cleaning, and since they have no history with the client, they are likely to leave the client less satisfied due to systematic differences in how their home is cleaned. This is an essential factor to remember because client satisfaction ultimately determines the success of your cleaning business. It may cause clients to seek out other companies because they feel yours does not provide consistent results. If you have independent contractors who clean at varying degrees and provide varying levels of services, you may end up costing yourself valuable customers and losing profit. Hiring employees means that you can set a standard. Though it may require payroll taxes, it also ensures that you can place controls to ensure that your business’ name is upheld through consistent and proper cleaning procedures as followed by all good cleaning businesses.
Another equally important key to the relationship between the two parties relates to the length of the expected employment. Do the individuals you hire believe that they will be employed for a period of only one job, two jobs, etc.? Or, do the individuals you hire think that they will be utilized for some length of time? This is a critical factor in determining whether you will hire independent contractors or employees. First, hiring an independent contractor perpetuates the idea that the relationship is more short-term, meaning that it is not likely that the same independent contractor will be used for that job when you have another job. The inability to provide consistency can prove again to be a downfall for a cleaning business. Short-term relationships are how independent contractor classifications are made. Alternatively, you may hire employees who are under the impression that the relationship is meant to last for an extended period of time. This is helpful because, with an employee, you can schedule them for specific times and specific days. They will have the understanding that they must be present at those predetermined times and places. Hiring an employee means a more permanent relationship is built and allows for much more control and certainty for each party involved.
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Join Facebook GroupOverall the process for hiring independent contractors versus employees involves many different factors. Looking at it using the Internal Revenue Service’s determined categories, you can review the pros and cons of each of the two different worker classifications. By reviewing behavioral control, you can decide if you want a broad range of power and need to hire employees, or if limited control is permissible and independent contractors would be sufficient. You can then review financial controls which directly impact your overall profits. Determining which kind of investment is needed, either from the business or the individual, will allow you to determine which classification is best suited for your cleaning business. Finally, there is the aspect of the relationship between the company and the individual. Employees believe that the relationship is long-standing or is at least meant to be long-standing. They are provided with benefits that independent contractors are not given. Employees develop a more permanent relationship with the business, while independent contractors are aware that their relationship is typically short-term or can end at any time.
Reviewing each of the controls will allow you to tailor your decision to your business. It may require calculations, such as determining if it would be more cost-effective for individuals to buy their supplies as independent contractors or if it would be better for the business to provide those supplies. Additionally, you may want to create a financial forecast which allows you to preview what your projected profits would look like when hiring independent contractors versus hiring employees. By comparing the pros and cons presented and comparing your own financial forecasts, you can make an informed decision as to which worker classification would better suit your cleaning business. It would help if you remembered to understand that the classification chosen must be supported by evidence (contracts, agreements). If the Internal Revenue Service determines you have made the incorrect classification, the result could be fines and costs owed by the business. It is essential to review all of the pros and cons before deciding whether to hire an independent contractor or an employee for your cleaning business.
