Some Human Issues with Scaling Your Business

During the lifecycle of small businesses, the inevitable question is arrived at and asked at one time or another. This question is: As I need to grow my business to survive or to take advantage of growth opportunities, how am I going to find the people I need to have working with me?

This question illustrates the dynamic that your business has hit a ceiling for revenue growth and the current revenues are not sufficient to meet your goals or needs.

There are four actions you can take to choose from.

Do nothing. This conscious choice allows you to maintain your operations at the level it is until a disruptive event occurs to change that static dynamic. Any growth will come from increased margins and the extra effort you put into your company.

Hire a third-party service to provide employees to your company. This option carries benefits and liabilities to the business as do the other options. You can control your costs and place the burden of recruiting and managing the related employment paperwork to the third-party who is providing the service. For this convenience, you pay a premium  to the service to cover their costs and profits. You also provide supervision and training for the third-party contractor’s employees.

Hire your own employees. This entails obtaining the proper registrations, providing workers’ compensation insurance, having supervision and training programs in place, and either performing payroll services in-house or outsourcing those duties. Additional management tasks are added through this option.

Outsource the duties to contractors. This is also known as hiring 1099 contractors, named after the Federal Tax Form 1099 which is issued to each contractor you have associated with your company who earns $600 or more in a calendar year. With contractors, the burden of doing payroll functions is eliminated in favor of paying invoices submitted for the services rendered. You are still required to supervise and train the contractors.

In all cases, your customers will expect you to maintain the product quality and customer service standards they are used to receiving from you.

If option number III is chosen, it will be important for you to become familiar with the rules regarding hiring employees in Oregon. You will need to register as an employer with the Department of Revenue through obtaining a Business Identification number (BIN). Allow for a few weeks processing time in advance of your first payroll to make sure you re registered correctly with the State.

If option IV is chosen, you will need to become intimately familiar with the rules regarding the hiring of contractors who perform tasks normally associated with employees. These rules are developed and enforced through the Internal Revenue Service (IRS) and the Oregon Bureau of Labor and Industries (BOLI). Each agency provides information regarding the preponderance of evidence that indicate whether a person working in your company qualifies as a contractor or is in actuality, an employee. Claiming a person as a contractor in order to avoid the administrative burdens and costs associated with hiring employees is a very common area where businesses are cited and fined for illegal or improper practices. 

From the IRS website: “In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.”  

From the BOLI website: “A worker’s status as either an employee or independent contractor is determined by the reality of the work relationship, not a label or title given to a worker.” 

So, the nature of the relationship between company and individual is the determining factor regarding whether the person is a contractor or employee. A thorough understanding of what this means to you in your situation will save a huge amount of time, money, legal problems, energy, and stress avoidance in the future through having your help classified correctly. It is worth investigating and executing the best solution for your situation in advance of need.

― Marshall Doak

Marshall Doak is the Director of the Southern Oregon University Small Business Development Center and a huge supporter of innovation and the community that forms around innovation in the economy. In private practice, he works with businesses that plan to transition to new ownership within the next five years, assisting them to build value that can be converted to retirement income when the business sells. He can be reached through: mdoak06@gmail.com or 541-646-4126.