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          A Home-Based Business Online


          
           
            

             Issue 95 : August 13

            Sent to 10,751 Opt-In Subscribers

          Editor: Elena Fawkner
          Publisher: AHBBO Publishing
           http://www.shelteredturtle.com
           Contact By Email







        1.  Welcome and Update from Elena
        2.  Home-Based Business Idea of the Week - Interior Decorator
        3.  Feature Article - Misclassifying Employees as Independent
          Contractors ... One of the Most Expensive Mistakes of Them
          All
        4.  Subscription Management
        6.  Contact Information



        1.  Welcome and Update from Elena


        Hello again and a warm welcome to all the new subscribers who
        have joined us since the last issue!

        A few alert souls noticed there was no issue of AHBBO last week.
        The Code Red Virus, although not actually infecting my webhost's/
        ISP's server still managed to slow everything down so much that it
        was impossible to do a mailing to a group the size of AHBBO's
        subscriber base.

        That seems to have righted itself for now though so here we are.

        This week's article looks at an issue that will come up for many of
        you running home-based businesses at some point: whether, when
        you need to hire outside help, you should hire an employee or an
        independent contractor.  Although hiring an independent contractor
        is usually a good choice because it is less expensive than hiring
        an employee, it is very important to get the relationship off to the
        right start and with the right foundation if you are to avoid hefty
        back taxes and penalties for misclassifying an employee as an
        independent contractor.  This week's article looks at the factors you
        need to consider when taking this important step.

        As always, thanks for reading and I hope you enjoy this week's
        issue.

        Remember, this ezine is for YOU!  If you have comments or
        suggestions for topics you would like to see addressed, or would
        just like to share your experiences with other subscribers, I want
        to hear from you!  Please send comments, questions and stories
        to Contact By Email .



        2.  Home-Based Business Idea of the Week - Interior Decorating


        If you have a flair for decorating and know how to make the most of a
        room抯 potential while working within a budget, a business as an
        interior designer/decorator may be for you.

        While in days gone by only the wealthy could be expected to hire
        an interior designer, the field has now expanded and become much
        more popular. Costs of materials have also reduced with the result
        that the services of a professional decorator are within the reach of
        even modest income families.

        As an interior decorator, you need to be good with color, fabric and
        furniture as well as having a strong network of suppliers and well-
        developed budgeting and communication skills.

        One of the first challenges you will face will be learning to separate
        your personal tastes from those of your client. Another, which involves
        generating business in the first place, is overcoming the negative
        perception the general public has about interior designers. A recent
        survey by the American Society of Interior Designers found that
        there is common myth that interior designers are bossy, intimidating
        and expensive. Market yourself as the antithesis of this image to give
        yourself a competitive edge.

        The relationship between interior designer and client is an intimate one,
        at least where the project is the client抯 home. There is nothing so
        personal as creating a space that will be lived in day in, day out. For
        this reason it is imperative you have the interpersonal skills necessary
        to draw out of your client their real needs and preferences.

        For the rest of this report, visit
        http://www.shelteredturtle.com/interiordecorator.html .

        -----

        There are many more ideas like this at the AHBBO Home Business
        Ideas page at free home based business ideas with more being
        added all the time.






        3.  Feature Article - Misclassifying Employees as Independent Contractors ... One of the Most Expensive Mistakes of Them All


        © 2017 Elena Fawkner

        The time comes for every successful home-based business owner
        when one person can no longer do it all.  In the early days of your
        fledgling business you accepted that not only were you CEO, CFO,
        COO, secretary, treasurer and marketing director, you also had to
        be laborer, receptionist, janitor, chief cook and bottlewasher.  That
        is simply what you have to do when starting out.  In fact, I'll bet you
        worked harder in your "little home business" than you ever did in
        your former life as corporate whatever, right?  But now the time has
        come.  You have successfully taken your business past the initial,
        maddeningly slow, frustrating start-up phase to the point where
        you're seeing some growth ... so much growth in fact that you're
        finding it near impossible to keep all the balls in the air.

        The time has come to hire some help.  OK, but what kind of help
        do you need?  If it's a secretary/receptionist, that's easy.  You go
        out and hire yourself a competent employee.  But what if it's someone
        to carry out specific projects such as designing a website for a
        good customer you just can't service within the timeframe the
        customer needs?  What if it's someone to create a marketing
        program to launch your business to the masses?  What if it's a
        bookkeeper to handle your accounts payable, receivable and
        everything else in between?  The difference between these types of
        activities and our secretary/receptionist example is that the former
        are all specific projects whereas the latter is not.

        When considering whom to hire for your project work, you have a
        choice ... hire a full-time or part-time employee or hire an
        independent contractor.  By the time you include all the add-on
        costs of hiring an employee (in addition to wages or salary you need
        to add on federal and state payroll taxes, social security tax,
        federal unemployment insurance tax, state unemployment
        insurance, workers' comp premiums and employee benefits,
        not to mention shelling out for office space and equipment), hiring
        an employee becomes a relatively expensive option compared to
        hiring an independent contractor to do the same work.  The add-on
        costs of hiring an employee usually add about 30-40% to the
        bill.  In other words, if you pay your employee $10 an hour, you'll
        really be paying $13 - $14 an hour once you include all the add-on
        expenses. 

        In contrast, although you usually pay an independent contractor
        more than an employee, that cost will still be less than  an employee
        with the add-on expenses.  You may pay an independent contractor
        $12 an hour without any additional charges.  Sound good?  Well,
        read on.  It's not as easy as it looks.

        WHAT IS AN INDEPENDENT CONTRACTOR?

        So, what is the difference between an employee and an independent
        contractor anyway?  Quite simply, an independent contractor is
        someone who contracts with someone else to provide specified
        services for a set price on terms and conditions outlined in the
        contract.

        For example, let's say you hire a gardener to mow your lawn and
        get rid of weeds once a week.  Your contract (whether written or not)
        is that Joe Gardener will arrive at your house on Friday morning,
        mow your lawn, get rid of weeds and generally tend to your garden.
        In exchange, you agree to pay Joe $40 for this service each week. 
        Joe supplies his own lawnmower, hedge clippers and weeding tools.
        Joe decides what time he arrives and how long the job takes (within
        reasonable parameters).  You do not supervise Joe in his tasks or
        dictate to him how they are to be done.  Joe is an independent
        businessperson and you treat him accordingly.  The final product
        is either to your satisfaction or it isn't.  When he's finished, you pay
        him if you're satisfied with the end result and you don't pay him if
        you're not.

        Contrast this with an employer/employee situation.  Let's say
        you own the business Joe's Gardening Service.  You employ
        three employee gardeners to perform services for your business.
        As the gardeners' employer, you pay them a fixed wage and you
        withhold taxes, unemployment insurance and various other
        benefits from their wages to remit to the appropriate government
        agencies.  In addition, you provide your employees with the tools
        and equipment they need to perform their work.  You tell them what
        to do and supervise them while they're doing it.  At the end of the
        job they get paid by you whether your customer is satisfied with
        the job or not.  In other words, although your customer may not
        pay you (the independent contractor) because she is dissatisfied
        with the work performed by your employees, you must still pay
        your employees because they are not independent contractors -
        they are your employees and are entitled to be paid a fixed wage. 
        If you are dissatisfied with their work, you can fire them but you
        can't decide whether to pay or withhold their wages based on the
        end result of the particular project.






        ADVANTAGES OF INDEPENDENT CONTRACTORS

        => Cost

        As mentioned above, the main advantage of independent
        contractors versus employees is cost.  You can get the same
        or better service from independent contractors for a lower hourly
        rate than you can from employees because you don't have to
        incur all the add-on expenses that go along with hiring employees.

        => Equipment and Materials

        In addition, you don't have to provide office space or materials
        and equipment to independent contractors.  As independent
        contractors (who may also go by the terms "freelancers",
        "consultants", "self-employed", "business owners" etc.) are
        self-employed business people, they have their own "tools of the
        trade".  If they're website designers, they have their own office
        space, computer and printing equipment.  If they're gardeners,
        they have their own lawn mower, whipper-snipper, wheelbarrow
        and pruning shears.

        => Legal Liability

        At law, an employer is vicariously liable for the torts of his or
        her employees.  This means that if you hire an employee gardener
        who accidentally runs over your customer's pet cat in the driveway
        of her home when the customer had made it clear that your
        employees are always to park in the street, in addition to suing your
        employee for negligence, she can also sue you, the employer, as
        you are vicariously responsible for the acts of your employees.  (And,
        by the way, this applies whenever your employee is acting within
        the scope of employment, whether under your express instruction
        or not.  If your employee has a car accident when traveling between
        jobs and his negligence at least partially caused the accident,
        you're responsible to the same extent as the employee.)

        This is generally not the case with an independent contractor unless
        the independent contractor has been engaged to perform an inherently
        dangerous activity (such as blasting) or you have attempted to
        delegate to your independent contractor a non-delegable duty (such
        as keeping a rental property you own in good repair for the benefit of
        the tenant).

        In addition to minimizing legal liability for torts, hiring independent
        contractors also minimizes your liability for other types of lawsuits
        such as wrongful termination or job discrimination. 

        DISADVANTAGES OF INDEPENDENT CONTRACTORS

        There are two main disadvantages to hiring independent contractors
        versus employees.

        => Misclassification

        Far and away the most serious disadvantage is if you misclassify
        employees as independent contractors.  Merely labeling a worker as
        an independent contractor is not enough.  They must actually be an
        independent contractor.

        If you do misclassify an employee as an independent contractor, you
        must pay the IRS all back-taxes owed, plus interest, plus penalty
        (12% - 35% of the total tax bill).

        Also, you expose yourself to an increased risk of state audits when
        your terminated independent contractor files for unemployment
        benefits.  Never mind that you and your independent contractor
        intended that there be no employer/employee relationship, many's
        the disgruntled independent contractor who unilaterally decides to
        recategorize the relationship as one of employer/employee when
        the spectre of unemployment benefits raises its pretty head.  In such
        situations, you'd better be able to protect yourself by proving that
        the arrangement was for an independent contractor and not an
        employee.

        => Legal Liability

        Unlike an employee who is limited to workers' compensation
        benefits, an independent contractor can sue you for negligence if
        they're injured on the job.  That's what liability insurance is for
        though.

        DETERMINING WHETHER JOE IS EMPLOYEE OR INDEPENDENT
        CONTRACTOR

        Unfortunately, as far as the various government agencies are concerned,
        there is not one single test that determines whether Joe is your
        employee or an independent contractor.  Even more difficult, it is
        quite possible that for the purposes of one government agency Joe is
        considered to be an independent contractor while for another he is
        treated as an employee.

        => The IRS/Common Law "Control" Test

        The IRS follows the common law "control" test for determining whether
        someone is an employee or independent contractor.  This test looks
        at 20 factors as being indicative (and only indicative) of whether
        the person is an employee or independent contractor.  The test
        basically involves a balancing of these factors -- which way does the
        scale tip?

        Here are the IRS factors:

        1. Whether the worker can earn a profit or suffer a loss from the
        activity (if so, the more likely it is that the worker is an independent
        contractor).
        2. Whether the worker is told where to work (indicative of employee
        status).
        3. Whether the worker offers his or her services to the general
        public (indicative of independent contractor status).
        4. Whether the worker can be fired by the hiring firm.
        5. Whether the worker furnishes the tools and materials needed to
        do the work (indicative of independent contractor status).
        6. Whether the worker is paid by the job or by the hour (independent
        contractors are more likely to be paid by the job; employees by the
        hour).
        7. Whether the worker works for more than one firm at a time
        (indicative of independent contractor status).
        8. Whether the worker has a continuing relationship with the hiring
        firm (indicative of employee status).
        9. Whether the worker invests in equipment and facilities (indicative
        of independent contractor status).
        10. Whether the worker pays his or her own business and traveling
        expenses (indicative of independent contractor status).
        11. Whether the worker has the right to quit without incurring
        liability (indicative of employee status).
        12. Whether the worker receives instructions from the hiring firm
        (indicative of employee status).
        13. Whether the worker is told how to perform the work (indicative of
        employee status).
        14. Whether the worker receives training from the hiring firm (indicative
        of employee status).
        15. Whether the worker performs the services personally.
        16. Whether the worker hires and pays assistants (indicative of
        independent contractor status).
        17. Whether the worker sets his or her own working hours (indicative
        of independent contractor status).
        18. Whether the worker provides regular progress reports to the
        hiring firm.
        19. Whether the worker works full-time for the hiring firm (indicative
        of employee status).
        20. Whether the worker provides services that are an integral part
        of the hiring firm's day-to-day operations (indicative of employee
        status).

        It is important to note that none of the above factors are, of themselves,
        determinative. The IRS will balance all of the factors to determine
        which side of the equation is favored.

        => Other Agencies

        The other government agencies with which you need to be concerned
        are:

        1.  Your state Unemployment Compensation Board.
        2.  Your state Workers' Compensation Insurance Agency.
        3.  Your state Tax Department.
        4.  Your state/federal Department of Labor.

        Unfortunately each state agency varies in its approach to determining
        whether a worker is an employee or independent contractor.  Many
        states' agencies use a statutory test focusing on just a few of the "control"
        test factors.  You should therefore find out the factors that your state's
        agencies take into account before hiring any independent contractors. 
        Most of this information will be available on the agency's website.  If not,
        call them and get them to send you information about their policies.

        PROTECTING YOURSELF

        OK, so you know the difference between an independent contractor
        and an employee, you know the advantages and disadvantages of
        hiring independent contractors and you know the dangers of
        misclassification.  How do you protect yourself?

        => Independent Contractor Agreement

        First and foremost, arm yourself with the IRS' control test factors and
        the tests used by the various government agencies in your state.
        Once you have that information, you can structure your arrangements
        with your independent contractors accordingly.  These arrangements
        should be reduced to writing, in the form of an independent contractor
        agreement.

        An independent contractor agreement should contain a description of
        the services the independent contractor is to perform, by when they
        are to be performed and the amount the independent contractor is
        to receive in return for satisfactory service.

        This agreement can be very helpful evidence in proving that the
        worker's status was independent contractor rather than employee.
        Although such an agreement is insufficient by itself (if you nonetheless
        treat the independent contractor as an employee the agreement
        will be worthless for this purpose), if the factors weighed by the IRS
        under the control test are evenly balanced, an independent contractor
        agreement may well tip the scales in your favor.

        => Screening

        Before hiring an independent contractor, put him or her through a
        few hoops first.  It's a good idea to prepare some form of questionnaire
        to extract the sort of information you would need to be able to prove
        in support of your argument that the worker is, in fact, an independent
        contractor and not an employee.  Examples of such information
        (courtesy of the NOLO website - http://www.nolo.com) include:

        1.  Whether the worker has formed a legal entity for his or her business.
        2.  Whether the worker has filed a fictitious business name (also known
        as a "DBA" or "doing business as").
        3.  The worker's business address and telephone numbers.
        4. The number of employees employed by the business.
        5. Whether the worker has any professional or business licenses.
        6. References from other business for whom the worker has performed
        services as an independent contractor.
        7.  How the worker markets his or her business.
        8.  Whether the worker maintains an office separate from his or her
        home.
        9.  A description of the equipment and facilities the worker owns and
        will use in the project.
        10.  Whether the worker has business cards and stationery etc..
        11.  A listing of the types of insurance coverage the worker has
        for his or her business.

        Request documents that evidence the responses to the above questions.
        For example, get copies of fictitious business name statements,
        professional and business licenses; references; business cards and
        stationery and insurance policies.

        At the end of the day, whether you hire an employee or an independent
        contractor is a decision for you and your business.  If you feel you can
        adequately protect yourself against an allegation of misclassification
        then, by all means, follow the independent contractor route if that makes
        most sense to you.  But if you don't feel confident in managing the
        relationship to protect yourself from such a charge, for your own
        peace of mind, you may be well advised to hire an employee even if
        that is more expensive up-front.  After all, if you get it wrong, you'll be
        paying those additional costs anyway in the form of back-taxes (and
        interest and penalties to boot).

        ------





          (Articles are no longer being made available
        via autoresponder due to large numbers of bounced mails due
        to full mailboxes.)



        ------



        entrepreneur.
        http://www.shelteredturtle.com




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        6. Contact Information



        Elena Fawkner, Editor
        A Home-Based Business Online
        Contact By Email
        http://www.shelteredturtle.com


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