Ready to hire? You have many employee options

NEW YORK - Even though the economy is still suffering and many small businesses won't be hiring for some time, some companies are thinking about taking on more workers. The question for many is, what kind?

Some business owners will hire full-time or part-time employees, while others will consider going the independent contractor route. Temps are another option.

Each kind of worker has its pros and cons. With an employee who's on the payroll, for example, an owner is responsible for salary, employment taxes and insurance that is required by law, such as workers compensation. At the same time, that employee may have more of a commitment to the company than other types of workers.

Here are the kinds of workers an employer should consider:

EMPLOYEES

An owner has the greatest responsibility for employees who are given staff positions. There are many federal and state labor laws to be aware of, and expenses like employment taxes — Social Security and Medicare — and workers compensation insurance to be paid. If the employee is laid off, the company ends up paying for some of the unemployment benefits.

But for many companies, hiring employees is the best way to build for the long term.

"If you know you're growing, then find someone who's really committed, said Arlene Vernon, president of HRx Inc., an Eden Prairie, Minn.-based HR consultancy. "They're going to think for the benefit of the organization."

The temporary employee, meanwhile, "is going to be clocking out at 5," she said. And an independent contractor may be juggling jobs for other companies.

Anyone who has hired employees knows it can be an iffy proposition. When someone doesn't work out, there are issues about how to handle the dismissal, and the search for a successor can take time.

But with the right employee, a company has a chance to grow.

"The person is more readily integrated into the culture of the organization, which can have a hard-to-measure but real impact on the productivity of that person and those around him or her," said Jay Keegan, CEO of Adams Keegan, a Memphis, Tenn.-based human resources management firm.

INDEPENDENT CONTRACTORS

Many small business owners use independent contractors because they can be engaged for a specific project, which means different people for different jobs. And because these workers are self-employed, there's no need to pay the taxes and insurance that go along with a full-time hire. They also don't provide benefits to independent contractors.

Some small businesses ask employees they had to lay off to work as independent contractors. That can be a huge plus, since the worker is already familiar with the company, what it does and what its culture is like.

One of the downsides of an independent contractor is that a business could be competing with others for the worker's time and attention. On the other hand, if they like the work and the pay, they're likely to keep working with you.

There's also a tax caveat to be considered. Because companies don't need to pay employment taxes when they use independent contractors, the IRS is on the lookout for abuses in which a worker is called an independent contractor, but is being treated like an employee.

The key distinction between the two types of workers is control. If an owner has the right to control aspects of the job like the place of work and the hours put in, and if there is too much supervision of the worker, the IRS is likely to consider this an employer-employee relationship.

The IRS has information about the differences between employees and independent contractors on its Web site at http://www.irs.gov/businesses/small/.

TEMPORARY WORKERS

First, it's important to distinguish between someone you hire temporarily, and a worker who comes from a temporary staffing agency. Someone you hire for a limited time is still an employee under the law, and so you'll have to pay for taxes and insurance. Someone from a temp agency technically is working for the agency and so you don't need to pay that money.

Many companies turn to temp agencies so they can try out a worker before committing to a permanent hire. The worker also gets to give the boss a tryout.

"They each have the opportunity to evaluate whether they're a good fit and are meeting their needs," Keegan said.

And if the employee doesn't work out, the company doesn't have to deal with severance issues like unemployment insurance, Keegan said.

The minuses with temporary workers include the fact that they may not have the kind of commitment to the job as someone who knows the job is theirs. And co-workers may not work as well with someone who's here now but likely to be gone soon.

Temps can also be expensive, since you're paying fees to the agency. And if you decide to take the worker on full-time, you could be paying a fee in the thousands of dollars.

But, Keegan noted, the payment to the agency may be worth it if you've found a great worker.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.