Question:
I finally found the answer to running my small business without having to deal with employee problems. I got rid of all of my employees. Problems solved in one fell swoop.
I’m not a tough-guy boss, anything but. I carried four of my six employees through the pandemic, despite the fact I had to take out loans from family members to make payroll. My small business weathered the “great resignation” and “quiet quitting,” wondering what happened to employee loyalty. Then, when I fired an employee for lack of ethics, he sued me. He didn’t win, but fighting his bogus lawsuit stole time I needed for real work. I decided enough was enough and looked for other options.
Now, when I need work done, I visit websites such as Toptal, Freelancer, Fiverr, Guru, Upwork and FlexJobs, which link employers with independent contractors. I can find freelancers able to handle everything from project management to website design. I post a job and within minutes receive pitches from dozens of highly skilled applicants.
I was skeptical at first and worried I’d be dealing with sketchy individuals who couldn’t hold down real jobs. Then, when I needed an interim CFO, I found a top-notch professional who freelanced because she liked the freedom.
I wish I’d found this solution years ago. I no longer spend hours vetting applicants because if a contractor doesn’t work out, I let them know their contract has come to an end and look for a new freelancer.
I don’t see a problem with doing business this way. Do you?
Answer:
An increasing number of employers use the services of the nearly 77 million people, 36% of the U.S. labor force, who offer their services as independent workers or freelancers.
Researchers estimate that by 2027, more than half the U.S. workforce will take part in the gig economy.
Here are the landmines you need to avoid.
Regulatory issues
Make sure you manage each freelancer as an independent contractor and not as a de facto employee. Internal Revenue Service regulations dictate whether a worker is an employee or contractor based on how much control the employer exercises. You can read the IRS’s 20-point checklist here.
Employers who misclassify in-fact employees as contractors have to repay back wages, unpaid income tax, and owed social security and unemployment insurance benefits, and may be liable for civil and criminal penalties, damages, penalties and owed overtime. FedEx and Lowes have paid multimillion-dollar penalties for misclassification.
The U.S. Department of Labor, which employs thousands of investigators actively searching out employers who misclassify employees as contractors, estimates that as many as 30% of employers do so. As one surprise example, strippers and exotic dancers qualify as employees rather than contractors.
Often, it’s the contractor who turns in their employer to the Labor Department when a problem arises, such as an accident for which the freelancer discovers they’re ineligible for worker’s compensation benefits unless they claim employee status. Freelancers with home services agency Handy claimed they were entitled to the pay and benefits given to employees and won $6 million.
Managerial shift
Managing contractors takes less and more work than managing employees. You’ll need to shift how you manage. You can kiss goodbye many of your former managerial tasks such as performance appraisal and disciplinary counseling. If your freelancers don’t deliver results on time and to expectation, you can cut them loose.
On the other hand, you may be accustomed to providing a general overview of what you want your employees to accomplish, knowing they’ll regularly touch base with you regularly for clarification and course correction. When you assign a task to a contractor, you need to define it specifically or you won’t get what you want, but will need to pay because the contractor delivered “generally” what you requested. While the best contractors, like the best employees, offer employers a degree of loyalty, many contractors’ loyalty ends after they’ve cashed your check. If that contractor works for your competitors, you may lose proprietary material.
If any of your contractors needs assistance from others in your employ, you’ll need to serve as the conduit, as they won’t know who to call among your cast of revolving workers. Contractors also lack institutional knowledge, which might limit their ability to handle certain projects or answer client questions about other aspects of your business.
Finally, if a contractor dazzles you and you want them to remain working for you, you may have to bite the bullet and declare them an employee.
Do I see problems with your newfound strategy? Not if you avoid these landmines.
[A ‘scarily competitive’ temp is gunning for my job]