Classifying workers is one of the important decisions small business owners must make. It’s common for certain company contributors to fall under the “independent contractor” title, including consultants, writers, web designers, search engine experts, secretaries, janitors, machine operators, painters, electricians and other service providers. However, misrepresenting employees as contractors could cost companies big-time, so one must know the definition and the costs of an employee vs. an independent contractor.
DefinitionThe Internal Revenue Service (IRS) looks at three factors to define an employee or an independent contractor: behavioral control, financial control and relationship. Employees are told when, where and how to work. They are given set hours and paid an hourly wage or salary. By contrast, independent contractors work on a project-by-project basis, taking as many hours as they need to complete the task for one set fee. Employees traditionally have most of their tools and financial expenses covered for them by the business, whereas independent contractors may have to purchase their own equipment without reimbursement.rnrnEmployees usually receive benefits that include pensions, health insurance, vacation days and disability insurance, and contractors pay their own way. Independent contractors are also responsible for paying all of their own taxes, as opposed to employees who share the cost with their employers. Generally, employees are hired on a more long-term basis compared with independent contractors.
Employee CostsIn April 2010, the Bureau of Labor Statistics estimated that employer costs for employee compensation averaged $29.71 per hour, with wages accounting for 69.6 percent and benefits averaging 30.4 percent of the total employee cost. They found that civilian employer costs, including private industry and government workers, averaged $2.62 per hour for life, health and disability insurance or 8.8 percent of total compensation. Legally mandated benefits, including Social Security, Medicare, unemployment and workers’ compensation, totaled $2.30 per hour or 7.7 percent. Benefits that include paid leave, vacation, holiday pay, sick days and personal leave amounted to $2.06 per hour or 6.9 percent. Retirement and savings plans cost employers $1.32 per hour or 4.5 percent. Supplemental pay, such as overtime, shift differentials and bonuses, average 73 cents per hour or 2.5 percent.
Contractor CostsAccording to Businessweek Magazine, employers can save up to 30 percent by hiring an independent contractor because they avoid paying payroll taxes, unemployment insurance, workers’ compensation and disability, as well as benefits that include pensions, sick days, health insurance and vacation time. Because independent contractors are considered self-employed, they must pay the federal government 15.3 percent for Social Security and Medicare, as well as any state or local taxes themselves. Classifying regular employees as contractors also gives businesses the freedom to evade minimum wage requirements and overtime mandates as well.
Hidden CostsHowever, the cost of misclassifying employees is steep. The New York Times reports that California Attorney General Jerry Brown won a $13 million judgment against two companies that misclassified 300 janitors. The Illinois Department of Labor was awarded $328,500 in penalty fees from a home improvement company that misclassified 18 workers. In New York State, commissioner M. Patricia Smith says her task force has identified more than 31,000 instances of misclassification, bringing in $11 in unpaid unemployment taxes and $14.5 million in unpaid wages since late 2007.
Many small businesses rely on independent contractors and freelance workers because they’re more flexible — not to mention cheaper. However, the IRS warns that employers may end up paying more in the long-run for this game of dodging the system. “Bloomberg Businessweek” magazine reported that the IRS launched a three-year program in February 2010 that will examine 6,000 companies to look for permanent workers misclassified as independent contractors. President Barack Obama’s 2011 budget includes 100 new positions for caseworkers to pursue litigation if necessary. Most of these actions will target small businesses and the self-employed, says the General Accountability Office. If found guilty of misclassification, employers will be responsible for all past payroll taxes, unemployment taxes, plus interest and penalties. Although many business owners object that the legal definitions aren’t clear enough, the crackdown suggests that it may be better safe than sorry in this case.
A majority of job seekers in the U.S. turn to staffing agencies to further their careers. Statistics from the American Staffing Association (ASA) revealed that roughly 14 million Americans find employment through a recruitment agency every year, and around 3 million contract or part-time employees work for American staffing agencies in any given week. The benefits of using a staffing agency are clear for the job seeker – but what about the employer? The truth is, the value goes both ways. The advantages of using a staffing agency include a large network of qualified candidates, a streamlined recruitment process, and boosted new hire ROI, to name a few.
“14 million Americans find employment through a staffing agency every year.”
Staffing agencies carry a number of strengths that make them invaluable to a company’s candidate search. Recruitment firms possess not only a comprehensive understanding of the current job market, but they also have a more extensive reach to a wider pool of candidates. For example, staffing agencies are generally well-connected and have the resources to reach top-class passive candidates who may not necessarily be looking for a new job. According to LinkedIn, some of the very finest recruiting agencies will spend the majority of their time – up to 90 percent of it – reaching out to passive candidates and networking with organizations.
To gain the most value from a staffing agency, hiring managers can utilize top strategies. By following the steps below, companies will be able to optimize the success of their relationship with their staffing firm and ensure they boost the ROI on new hires.
If you’re looking for highly experienced broadcast and audiovisual professionals, contact The Mink Company to learn the benefits of using an industry-specific staffing agency that has been the leader in the industry since 2010.
Find a Niche Staffing Agency to Suit Hiring Needs
You will find the most value from a niche staffing agency that specializes in the kinds of positions you are offering. Why use a staffing agency that staffs a wide range of positions when you can find one that specializes in recruiting the candidates you really need?
There are a number of staffing agencies that find job seekers across a spectrum of business sectors, but they tend to be less effective than staffing agencies that focus specifically on one or a few different areas. Niche staffing agencies focus on specific positions within a department in a range of industries.
Not only will staffing agencies specialize in positions they staff, but also the employment type. Determine whether the position you are offering will be a contract, contract-to-hire, or direct hire role. By adding these criteria within your search, you have the potential to narrow down your results, leading you to the most suitable agency for your hiring needs.
Furthermore, it’s necessary to understand if the staffing agency in question carries out certain screening measures, such as criminal background checks and drug testing should this be a requirement. A recruitment agency that implements such measures beforehand will likely be more effective at presenting your company with the strongest possible candidates.
Set Up Regular Meetings
Once the very best agency has been selected, you should ensure that an agency representative is willing to get to know your company on a deeper and more involved level. According to the ASA, this can include a site visit if your agency is local. This would allow them to learn more about your organization and the positions available.
After the initial meeting, regular communication is key to establishing an effective working relationship with a staffing agency. Email contact will suffice for small, day-to-day details. However, utilize routine meetings as a way to check-in and ensure both parties are on the same page, working towards the same goal. The ASA advised that hiring managers actively inquire about the processes and techniques that their agency of choice utilizes to find their talent. Routine input from hiring managers can strengthen the working relationship further, guaranteeing that a company receives the best ROI from their next employee.
I found this great article pointing out 5 very important things when considering hiring employees in Mexico. If you are not ready to take this next full step of hiring full-time direct employees in Mexico, TMC may be able to help. For the past several years we have been providing clients with contract staffing services in Mexico. During this time we have built a vast database of technical candidates. TMC has IT, broadcast and AV engineers as well as field engineers, sales professionals, and customer support specialists. Let us know if we can be of any assistance.
Enjoy the article.
Mexico is widely known for being heavily protectionist towards the employee when it comes to the country’s labor law. Many foreign companies find that employment regulations in Mexico differ considerably to those in their country of origin and it is therefore strongly advised to employ a good labor law lawyer before hiring any workers.
All employment relationships entered into within the Mexican jurisdiction are governed by the Mexican Federal Labor Law (FLL) which was enacted in 1970 and updated with a new reform in 2012, and also subject to the Mexican Social Security Law, Safety, and Hygiene Legislation, and finally the Mexican Constitution, dating all the way back to 1917. Below are five key things your company should consider when employing workers in Mexico.
- Hiring Foreign Employees: Foreign Workers may only make up 10% of a company’s labor force in Mexico and the company must be formally registered to hire foreign employees and support the necessary working visa. The exception to this is that in relation to directors, general managers, and administrators, all hiring restrictions are removed, meaning that up to 100% of employees in this respect can be foreign.
- To Directly or Indirectly Employ: As complying with Mexican labor and social security law can be quite complicated, many employers opt to engage employees through a local subsidiary or service agent. This can reduce the foreign company´s exposure and obligations which might lead to the company being taxed as a Permanent Entity (PE).
- Obligations: The employer obligations with regard to the employee include (but are not limited to) the following: –
- Entering into a formal written employee agreement
- Complying with all legislation
- Paying salary weekly or bi-monthly
- Retaining and paying tax, social security, housing, and retirement contributions
- Granting all benefits required by the labor law
- Registering employees with the Mexican Social Security Institute IMSS within 5 days
- Providing proper tools and equipment
- Implementing proper health and safety protocols
- Employment Agreements: A contractual agreement between the employer and employee in Mexico arises almost immediately upon the engagement of the employee, and the burden of responsibility for the establishment of a formal contract lies with the employer. This means that even if you do not have a written contract with your employee the law will deem one to exist. There is no necessity to register any agreement for it to be enforceable. The fundamental point to remember is that the employee will have all rights in accordance with Mexican labor law irrespective of the (spoken or written) nature of the employment.
With this in mind should a litigation case arise, the burden of proof will be on the employer to establish the working conditions that were in place. In the event of an employee termination, at any subsequent trial some of the key things any employer would need to prove are as follows: –
- Date of employment
- Working hours
- Termination causes
- Following of proper dismissal procedure
- Holiday provision and pay
- Payment of premiums
- Payment of profit sharing
- Registration to and payment of the National Housing Fund
- Unions: Employee Unions play a significant role in workplaces in many companies in Mexico and any foreign employer should be aware of the regulations surrounding them. Unions have the right to form and affiliate employees and have the power to require an employer to sign a collective bargaining agreement. While foreign employees may join a union they cannot be part of any union executive committee.
If you need further advice about hiring employees in Mexico for your company, don’t hesitate to contact us at firstname.lastname@example.org or leave your comments below.