Hiring for Your Startup

Summary: Entrepreneurs often try to go it alone during the startup phase. But it's important to know when it's time to hire, and what your hiring options include.

---

Independent contractors, part-time employees, or full-time employees -- which option is best for your new business?

For many entrepreneurs, it's none of the above when getting their fledgling business off the ground. Trying to do everything yourself may seem like a good way to save money during the startup phase, but pay attention to the possibility it may be penny-wise and pound-foolish in the long run.

Hiring employees so you can focus on business strategy and growth is an important step in owning a business. When you determine that time has arrived, carefully consider your options and their implications:

Independent Contractors

If possible, begin by hiring independent contractors instead of employees. Using independent contractors allows you to easily staff up or down as needed, depending on your business's workflow.

Hiring contractors is typically less expensive than hiring employees, since you can pay contractors on a per-project or per-hour basis and avoid costs such as workers' compensation and payroll taxes. It can also give you access to specialized expertise that might otherwise be cost-prohibitive. (For more information, see Should You Hire or Outsource Your First Employee?)

Keep in mind: You will have less control over an independent contractor than an employee. In addition, if you classify someone as an independent contractor but the IRS considers that person an employee, you could be subject to stiff tax penalties. (For more information on tax issues related to independent contractors, see IRS Advice on Independent Contractors vs. Employees.)

Part-Time Employees

Part-time employees work well in situations where you need people to fill flexible or unusual hours, are dealing with seasonal fluctuations in demand, or need some assistance but don't have enough work to keep a full-time employee busy. A part-time bookkeeper or administrative assistant, for example, can be a great asset to a startup.

Part-time employees offer some of the benefits of both independent contractors and full-time employees. As with independent contractors, they are less expensive than full-timers; depending on your state's laws, you may not have to provide benefits to them; and you can adjust their hours to suit your needs. Like full-time employees, part-timers can be required to follow company policies and trained to the specifications of your business, giving you greater consistency. Part-time employees also have more opportunity than contractors to build relationships at your company, which will help you determine if this is a person you'd eventually like to have in a long-term, full-time position.

Keep in mind: Some people work part time because they want flexibility to handle other commitments, like family or school. This means part-time employees are sometimes less reliable than full-time workers. (For more information on preventing problems with part-timers, see Managing Part-Time Employees.)

Full-Time Employees

In some cases, you need full-time employees to get your venture up and running. Hiring full-timers does have advantages: Building a full-time, dedicated team can foster a sense of community, leading everyone to work harder to make the company a success. Full-timers are also likely to be more reliable and loyal than independent contractors or part-timers.

On the downside, full-time employees -- especially salaried ones -- cost more. To attract high-quality workers, you'll need to offer benefits such as health insurance and a 401(k) retirement plan, and you'll have to provide equipment and office space for them to do their jobs.

Keep in mind: Hiring even one full-time employee opens you up to a host of legal requirements. Make sure you understand and comply with all the federal and state laws related to discrimination, sexual harassment, termination, employee safety, benefits, pay, and more. You may need the advice of an attorney or HR consultant. (For more information, see Ten Tips on Hiring Your First Employee.)

---

Business Takeaways:

1. When it's time to bring on help, your primary options are independent contractors, part-time employees, and full-time employees.
2. Independent contractors and part-time workers typically cost less and give you more flexibility. Independent contractors can provide affordable expertise, while part-time employees learn your company processes and may grow loyal to your business.
3. Full-time employees are likely to exhibit more teamwork and be more dedicated to your business. But that extra support comes at a higher cost.

---