As your business grows, you will invariably reach a point where you simply cannot manage all aspects of the business without help. But many small business owners are finding it increasingly difficult to find quality employees to fill needed positions. The U.S. Small Business Administration claims that, “more than 50 percent of small businesses said it was very or somewhat difficult to fill open positions.” This has led many business owners to consider hiring contract labor.


Perhaps the single most important thing for business owners to learn about employment law is how to properly characterize employees and contract workers. Truly frightening consequences befall on employers who do not familiarize themselves with the proper classifications for hired help. The employer controls completely whether the services needed are provided by an employee or an independent contractor. However, the law controls the terms and conditions under which one may employ an individual or contract with them.


One major difference between contractors and employees is flexibility – on the part of the employer and the person being paid. An independent contractor must have autonomy, ability to accept other engagements and be able to set her or his own schedule so long as the job or task is performed. This is completely different than an employee who may be strictly controlled as to where, how and when he or she works. The business owner may also find working with a contractor more efficient as it allows for project specific work, capping or variable work hours and an ability to save money when work isn’t available or necessary such as seasonal hikes in activity.


Employees also come with a more complex array of laws and regulation. Employers must account for payroll tax, unemployment, workers compensation, auto liability and any employee benefits plan. Misclassification of an employee as an independent contractor causes the employer to become the insurer of the wrong doing, damage and injury caused by the employee. This can be a costly and terrifying mistake if someone is injured. Even if you have properly characterized an independent contractor, you should think seriously about being listed as an additional insured on the contractor’s insurance.



The preceding is part of a series of articles being offered in the coming weeks by The Fowler Law Firm called Employment Law Summer School. These articles are designed to help you avoid costly legal mistakes.


About your authors:

John Pearce is a tax attorney and Certified Public Accountant joint licensed in Texas, Louisiana, Georgia, and Kentucky. John regularly counsels with both large and small nonprofit organizations. He currently serves pro bono as Texas CPA Society Treasurer, Rotary District 5870, and Austin Bar Association Business & Taxation Section Treasurer.


Laura Fowler is the Managing Shareholder of The Fowler Law Firm PC. She is a regular speaker on a variety of business related topics. Email her at This email address is being protected from spambots. You need JavaScript enabled to view it. to receive updates on dates, topics and sponsors of upcoming discussions.  


About The Fowler Law Firm PC: Attorneys with The Fowler Law Firm PC proudly donate their talents and resources to many area charities and teach courses in Continuing Education Click HERE for more information. Follow our charitable adventures on our Facebook or LinkedIn pages.