Q: We have been creating fused-glass jewelry for the past 3½ years and sales have been excellent (in fact, much better than we ever dreamed). Now we are considering expansion, which would require hiring help for the sawing, grinding and finishing. My question is: What do we pay the people who would perform these tasks?
Also, do we enter into employment agreements that would require payroll tax deductions and payment to the State and IRS, as well as worker’s comp insurance? Or can we hire these people as subcontractors, leaving the tax responsibilities for them to handle? Then, do we pay hourly or by the number of pieces they process?
All of these are questions to which we need the answers as we are preparing our business plan and budget. In fact, these numbers will have a major impact on our plans and could possibly even force us to postpone that step for expansion.
—Anké Kelly, www.ankedsign.com
To grow or not to grow and when to do it is a question every business has to answer. Unfortunately many small business people don’t consider this move as carefully as you are. I can’t answer all of your questions with exact numbers, but I’ll try to give you the tools you need to answer them yourselves. The people who do work for you can fall into two categories.
In the first category is an employee who comes to work in your space when you tell then to and they use your tools. Yes, you have to pay all the taxes you list above for this person. In addition, depending on where you live, you may have to provide the option to purchase health insurance through the plan you use for yourselves. This employee would most likely be paid an hourly rate that would be comparable to what workers in your area get paid for production work whether they’re making car parts, light bulbs or jewelry.
The second way to get your work done would be to engage a subcontractor. Note I didn’t say hire, let’s be clear, this person doesn’t work for you, they work for themselves and contract to complete certain tasks for various businesses including yours. They would work in their own space with their own tools.
If this person needs training to do your tasks you may have to make them an employee since it is assumed that a subcontractor would know how to do the work. You can get an IRS opinion about your specific situation by filing an SS8 form with your local IRS office. Once set up they would typically meet with you, get the materials needed and a list of pieces ordered and a due date.
Then off they go to complete the task at their own convenience, maybe they like to work all night watching old movies. I’m aware of contracts between people who move the work back and forth via USPS. You can only require that the work must be done on your schedule and to your specifications. You do not pay any taxes for this person that is their responsibility. You do however provide them and your tax accountant with a 1099 Misc form at the end of the year stating the amount they were paid.
Whether you use an employee or a subcontractor to get the job done there are other important considerations. How much do your sales have to grow to pay for the work? Are you confident they will? And are you prepared to do the extra work needed to turn the parts created into finished goods? And the big one are you ready to bring another personality in the studio setting?
Cover photo credit: flazingo_photos / Foter / CC BY-SA