Freelancer’s Survival Guide: Employees Part One
The Freelancer’s Survival Guide: Employees Part One
Kristine Kathryn Rusch
Really, this section shouldn’t be titled “Employees.” It should be titled “People You Hire To Do Stuff For You.” But that’s too long and a little too wordy, even if it is accurate.
You see, the word “employee” has a specific meaning in the culture and under the tax code. According to the dictionary, an employee is someone who is paid by someone else to do work. Which is a lot like people you hire to do stuff for you—just as wordy and almost as vague. (Maybe I should have written “to work for you,” but I digress.)
In the culture, however, an employee is someone who goes to your place of business and works for you there. You schedule that employee for a certain number of hours, pay that employee a set wage per hour or a set salary, deduct all the applicable employment taxes, and give that employee a few perks like a paid vacation or sick leave or a bonus.
To the IRS—and remember, I’m not a lawyer, a tax accountant, or even a tax expert—an employee is someone who does their work at your place of business (or your home) for set hours and a set rate of pay. This can get dodgy, and we’ll get to that later. But there are strict rules in the tax code that define employees, and if you ever hire someone, you’d best check out what those rules are, in case you need to follow them.
Because the word “employee” has so many fraught meanings, I’m only going to use the cultural one. For example, Dean and I have no employees—at least this year. However, we hire a woman to clean our house weekly and a gardener who beautifies our yard biweekly. Tomorrow, we’ll hire movers to lug books and furniture from one building to another. In May, we hired a real estate agent to sell two of our properties, and I hired a literary agent a few years ago.
Actually, I’ve hired several literary agents over the various decades, and I’m not sure I can give you an accurate count of how many literary agents actually represent my work—not without some research, considering I have an agent in every country in which I’m published, plus a few in countries where I hope to be published. I have had, over the years, a Hollywood agent as well as a series of lawyers for a variety of different tasks, ranging from divorce to incorporation to real estate.
So how many people currently work for me? Dunno. Two more tomorrow than today (those movers) and two less by the weekend than tomorrow (again, those movers). If I had to give you an educated guess, I’d say that I have seven people working for me in the United States at this very moment. (More like twenty people, if you count all the folks who are working for me overseas.)
None of these people are employees by IRS rules. Most are consultants or people I hire for a specific task (the movers). Most of the house cleaners I’ve had over the years are employees of some other business—a house cleaning business that I hire, just like we’re hiring those movers through a moving company. The moving company handles all those nasty employee taxes and the IRS rules, and those fees are probably included in the hourly rate I pay to have those two strong guys to lug boxes of books from one building to the next.
But…I have had real employees, as many as nineteen, back when Dean and I owned Pulphouse Publishing. Only a few years ago, we had a fulltime employee at the collectibles store. That was a condition of deciding to own the store—an employee to handle the traffic, so we could travel and continue writing.
With that employee came all kinds of pain in the ass stuff like the aforementioned taxes and IRS documentation. You could spend two hours per day filling out forms, if you’re so inclined, which we weren’t. So we hired a payroll service to handle all the employee payment matters. We could have hired a bookkeeper, but the service was cheaper.
Back when I was an employee, I handled the employment taxes and all of that stuff for my employer. (Yep, dyslexic old me. That worked well [and yes, that was sarcasm].) It was that experience that made me a convert of temp services, employment companies (like moving companies), and payroll services.
Anything to avoid filling out those forms ever again.
But I get ahead of myself—although not by much. I needed to establish my employer credentials before I write this part of the Guide.
Because this first section of the employee section should help you decide when (if) you should hire an employee.
The real answer to when you should hire an employee is never.
Labor costs are usually the greatest expense in any business. The problem with employees is that they’re people. They’re people you’ll get to know and probably befriend despite your best efforts, so even if they cost you more money than they’re worth, you’ll be loathe to fire them or lay them off when the time comes.
So…you’re better off doing the work yourself.
However, that’s often unrealistic. Most businesses need a few employees to run efficiently. And it’s a balancing act to figure how many you actually need.
Most employees want to do the minimal amount of work for which they’ll get the most amount of money.
Most employers want the maximum amount of work for the least amount of money.
You can see the conflict here.
Most first-time employers believe that an employee will work as hard as the employer does, which is a huge mistake. Clearly, most employers don’t remember their own employee days—days when they arrived at work exhausted, left early, got the minimum done (or less than the minimum) and foisted the bulk of the job on someone else—or worse, didn’t do it at all.
Here’s the most important thing to remember about anyone you hire for any task:
No one else will care about your business as much as you do. No one else will work as hard as you do. No one else will ever have as much at stake in your business as you do.
If you remember all of that, you might survive having employees. But if you forget it, you could be in big, big trouble.
So let’s deal with the tough question first: When do you need an employee—and by employee, I mean the kind that the IRS recognizes as an employee.
You need an employee when you can no longer function alone as a business operator. You need help to run the day-to-day aspects of your business. You need to be in two places at once, each and every day.
If you have more work than you can possibly do by yourself, even putting in extra hours and streamlining your production, then you’ll need an employee.
The first thing you need to figure out is whether or not your need is permanent. Are you in a busy cycle that will go bust in a few short months? Or has your business increase become a fact of life?
If it’s a busy cycle, you can (and should) hire help through a temp agency. The agency will vet the employee, pay the employee’s wages and taxes, and make sure the employee meets your schedule. Should you dislike this employee, the agency will provide someone else.
That’s the best possible short term solution, and something you should do before you ever hire an employee yourself.
Because too many small business owners hire an employee only to discover that they hate having someone else on site. Or there are other problems, which we will get to later.
But let’s say you’re not on a busy cycle. Business has improved enough that you can’t provide the same quality product (or service) without some help.
Now you need to figure out if you need full or part-time help. Be conservative. The fewer people you hire means the fewer people you fire.
Yep, you’ll fire people. You’ll lay them off. You’ll cause distress in their lives—and in yours.
I’ve fired more people than I want to think about. I even fired volunteers, back when I worked for the listener-sponsored radio station. And why would you ever fire a volunteer—someone who gives of their time and talent?
Often, I fired the volunteer for cause: they stole from the station, they repeatedly insulted or abused the other volunteers, they repeatedly said inappropriate things on the air. But twice, I fired volunteers for not coming to work. Go figure that. Those two people volunteered their time, made a commitment, and then didn’t show up. When they did bother to come to the station, they were offended when we (in the form of me) told them we didn’t need them any more.
After doing that at the ripe old age of 23, I thought I could fire anyone.
I was wrong.
It’s different when you fire a friend or someone whom you like who simply can’t perform the job at all. And you will fire people. People who embezzle. People who don’t bathe (yeah, let that person go—that was an uncomfortable conversation). People who show up late every single day.
Worse than firing, though, is laying someone off. Income necessitates layoffs—or to put it more clearly, lack of income necessitates layoffs. Consider that 600,000 people lost their jobs to layoffs in January of this year alone. Most of those companies that laid the employees off still exist. The companies were just trimming their bottom line—because as I said, the biggest expense in most businesses is labor. People, in other words.
People with sick kids and elderly parents. People who do their jobs well, but cost a lot of money in wages and benefits. People who have mortgages and car payments and grocery bills. People whom you will get to know very, very well.
If you can’t imagine firing employees, if you can’t imagine laying off people who do their jobs well, then you should never ever hire an employee.
Instead, use some of the tips in next week’s section on services, contractors, and other people you hire.
Here are some other tricky things about employees: Lots of federal, state, and local rules and regulations govern your relationship with those employees. Some of those rules govern how you pay them. Some govern the taxes. Some govern how you treat the employee at the job. Some govern what benefits you can legally give. Some govern how you fire people.
All have an impact on you. Employees can and do file grievances with the state for a variety of things, some valid (like sexual harassment) and some not. Suddenly your business isn’t quite yours any more.
For example, I have a hell of a potty mouth, and whenever I’ve had employees, I’ve cleaned up my language so extremely that I could be talking to a nun without embarrassment. Why? Because some of the language I use can, in some states, be considered harassment, religious persecution, unfriendly workplace, all of that stuff.
Stuff you’ll have to consider, just because you hired someone else to sit in your place of business.
I’ve already alluded to the paperwork, which is enormous, even for one employee. When I worked as an editor for Mercury Press, my boss complained about where I lived. Mercury Press (which owned The Magazine of Fantasy and Science Fiction at that time) was based in Connecticut. I lived in Eugene, Oregon, which was in Lane County.
And Lane County had some kind of tax on employees—a transit tax, if I remember correctly—that Mercury Press, in Connecticut, had to pay. It wasn’t the money that bothered my boss. It was the paperwork, which was nonstandard, and took hours every month to fill out.
The rest of what I’m going to say about employees you probably know, but you haven’t thought about from an employer’s point of view. And you need to.
First, you must hire an employee. Again, you must follow federal, state, and local guidelines to do this. You cannot discriminate by race, creed, or gender. And you cannot discriminate against anyone with disabilities.
Again, let me use a Mercury Press story. Connecticut has some of the most stringent disability laws in the nation. Because Mercury Press had three employees, it had to have ramps and bathrooms that accommodated the disabled. Never mind that two of the three employees worked out of state. My then-employer had to completely remodel his office building to comply with what were then new regulations. It cost thousands.
You need to know what your state regulations are—and what the federal regulations are—before you ever hire anyone. Especially if your store or office is old and lacks proper access.
If you work at home, realize that there are regulations governing businesses with employees in the home. You also could be subject to a lot more harassment suits and other problems just because of your business’s location.
(And think about this: do you really want to fire someone who then gets angry and knows where you live? Just a thought from someone who once received a death threat from a volunteer she fired for cause.)
Let’s assume you go through a legal hiring process (yes, there are rules for hiring), and find someone you hope will be a good employee.
You need to know how many hours that person will work and how you will pay them. Will you pay them hourly? If so, you probably need some form of time clock. The honor method really doesn’t work, unless you’re there to supervise. If you pay them hourly, what will you pay for overtime? (Realize again, that each state has rules governing overtime pay.)
If there will be a lot of overtime, consider putting that employee on a salary. Here’s the secret to salaried employees—the employer should get 50-60 hours of work out of 40 hours of pay. Of course, the employee gets some perks as well—usually benefits like medical insurance, paid sick leave, paid vacation, a 401K—things that compensate for that unpaid overtime. (Those of you who still have salaried positions, have you ever noticed that the first people laid off in any company are salaried employees who never put in more than 40 hours, and often put in less? There’s a reason those folks get let go first—and it’s because they’re not giving a good benefit for the buck.)
This may sound silly, but I can’t tell you how many first time employers haven’t considered it: Make sure the salary or hourly pay rate you offer is one that you can afford.
Before you set the rate of pay, make sure 1) that it meets the state minimum wage (which is often greater than federal minimum) and 2) that the pay rate is what you’re giving the employee, not what you’re paying out of pocket.
I heard a collective “huh?” from those of you who have never hired anyone. Let me remind you of all that paperwork and taxes I discussed earlier. Now go look at your last paycheck from your last (or current) job. See the withholding? See the Social Security tax? See all those little notations, the dollars that never make it into your pocket?
When you’re the employer, those aren’t just numbers on a pay stub. That’s money you have to pay. And you don’t just pay part of the Social Security. You pay all of it (double what you see in your own pay stub). The withholding goes into a special tax account. The Social Security payment does as well.
So when you promise to pay someone $10 per hour, make sure you can afford that money—including the tax payments on the hourly wage. Or the salary.
The tax troubles you hear about—the scary ones, where you hear about the IRS bolting the door of a business—usually involve nonpayment of employee taxes. Those are the easiest thing to skip in the short term, and the things that have the most consequences in the long term.
So make sure you can afford your employee before you ever accept a single resumé for the position.
Also remember that you’re obligated to pay this person. Let’s say you agree on a two-week pay period. You must write that check at the end of two weeks. Your employee’s payment comes first—again, because of the laws governing this. You can’t (or I should say shouldn’t) withhold payment because you can’t afford it or because some client didn’t make the payments he promised. You must meet your employee obligations according to both state and federal employment laws.
So you better be able to afford that check every two weeks, like you promised. The minute paying your employee looks dicey, you need to consider laying that employee off.
Yep. It’s tough. And it gets tougher.
Because once you’ve hired that person and you’ve agreed to pay schedule, you also need to define the job that person will do. Part of defining the job is scheduling work hours.
You have become a supervisor as well as a business owner. You need to make sure your employee arrives on time, that the employee does the work assigned, and your employee leaves on time. (The opposite of the employee who never shows up to work is the one who takes advantage of that hourly overtime rate to rack up a lot of extra money.)
You have to teach the employee to do the job properly—which in the short term will cost you some productivity (and that can be a problem, since you’re hiring this person to help your business become more productive)—and you’ll have to make sure the employee behaves properly (dresses appropriately, has good phone manners, has clean hands [in the case of restaurants], doesn’t cheat, lie, or steal…you name it, you have to watch for it).
You have just hired a person to save you time and here they are costing you time. And they’ll continue to do so. Employees are rarely self-motivating. Most only do what they’re told.
So when you’re considering hiring an employee, you will need to factor in your lost time. If that employee doesn’t bring in double or triple what they earn, they’re not worth the time and effort you’ll put into them.
I could go on and on. I’ve been an employee and an employer. I have a ton of horror stories—and none of them match the horror stories of my friend, a former manager who worked in high tech. Having an employee is the most difficult part of owning a business.
So why would you want one?
Oddly enough, most business owners see employees as saviors, as people who will take some of the burden off.
That can’t be farther from the truth.
But the very real fact of owning a successful business is that you can’t—and shouldn’t—do everything. You will need help.
Fortunately, as I mentioned, there are a ton of services that can provide you with that help. I’ll discuss them next time.
You can now order either an e-book copy of the Guide or a trade paper copy of the Guide. It’s in slightly different format and has been organized, so that related topics are in an easily accessible place.
You can get the print version here.
For those of you who’d like to buy an ebook, here’s the Amazon link as well as the Barnes & Noble link. The e-book will also be available on all the other e-book sites. If you want it in your favorite format, and the book hasn’t yet been uploaded to your favorite site, try Smashwords. You’ll be able to download in a variety of e-book formats.
One of the interesting things you learn when hiring your first employee is how the Unemployment Compensation system works. The first thing you learn is that it is a tax on employers, not a government welfare program. Ultimately, all unemployment benefits come out of the employers’ pockets, not from any general tax revenue collected and allocated by state government. So, if you lay off or fire an employee (other than for very narrowly defined just cause), you pay the unemployment compensation that the employee draws.
The second most interesting thing you learn – and it is the most important to you – is that you, as a self employed person, do not qualify for Unemployment Compensation at all. As the risk taker, the fabled engine of American economic growth by being a small business employer, you are completely cut off from the safety net.
The bottom line? Employee unemployment welfare isn’t welfare at all and you don’t qualify. Save, save, save, because you’re the only safety net you’ll have.
Excellent point, Doug. Thanks.
I was having lunch with a friend of mine who runs his own business, a media research company with 5 or 6 employees. I’m a freelance writer, editor, novelist and now publisher with zero employees (and I’d like to keep it that way). He commented that “most employees don’t understand where the money comes from.”
But you as the employer do. And that can be a headache.
He also once mentioned that part of the current hassle of hiring is dealing not just with the IRS, but with the INS (immigration) to make sure all employees are legal citizens, etc. Hell, hire an accountant. You’re going to have to if you have employees.