Employee vs Independent Contractor vs Intern – Which is Right for You?
By VICKY BROWN
When your business is new, you usually start out doing everything yourself. But sooner or later you realize that in order to grow (and not lose your mind), you’re going to have to get some help. But what kind of help should you get – an independent contractor, or intern, or maybe an actual employee. Well there are pros and cons to each type, so let’s break them down.
First let me describe the difference between the three categories.
Technically speaking, an independent contractor is a separate business. Now it may be a business of one, but the official officials, consider it a separate business. So that independent contractor, or business of one, has all the responsibilities of any other business. They have to pay their own taxes, sell their services to more than just you, use their own equipment and expertise – basically not be under your direct control. They are just there to provide a product or service, and how that happens should be up to them.
Now there’s a lot of confusion around independent contractors, and what qualifies as one. Mostly because there are a lot of agencies with fingers in the pie. At the federal level, the Department of Labor has an opinion (and a set of guidelines), and the IRS has an opinion (and another set of guidelines). And then there are various states, and their opinions and guidelines. And while your contractor might meet the guidelines of one, or two, they may not meet the guidelines of the third. And if they miss the guidelines of any one of them, then they won’t qualify as an independent contractor.
So. for instance take California (since I’m in – you guessed it – California). In California, we still have the Dept of Labor and IRS guidelines at the federal level, but the state has her own rules as well.
Specifically the ABC rule. Now, I won’t get into the weeds on what the ABC rule means. The important point to know for this discussion is that, in California, with few exceptions, if the contractor is performing work that’s critical to your business (for instance, you’re a copywriting service, and you take on a contractor to do copywriting), then they can’t qualify as an independent contractor. That’s the B in the ABC rule. Now, as you might guess, that knocks out a large block on independent contractors.
Even aside from the state and federal level restrictions, an independent contractor won’t be fully engaged with your company the way an employee would.
“…An unpaid intern is not – I repeat, is not – free labor“
Now, before you flood the comments – I am absolutely aware that there are amazing contractors out there. And many companies have a team of contractors that they feel, in every way, operate as their employees. But there are also contractors for which you’re just one of a number of clients – and actually, when you look at the federal rules, you should be one among many clients. But with that, may not come the dedication and commitment of time and energy, that you get from an employee.
And by the way, people always ask me – what’s the worst that can happen if I misclassify a contractor. Well, you’ll be in violation of payroll taxes, workers compensation rules, unemployment insurance rules, minimum wage and/or overtime rules, paid sick leave rules, and a host of other employment laws. So, as you might guess, the fines and penalties add up quickly.
OK, so on to using an intern. Some companies opt for interns with the hope of getting someone to help out at little or no pay. Of course, generally interns will have less skills and experience than someone looking to be employed in that role. But that’s a trade off many companies are willing to make. So when can, and when can’t you, use an intern?
Internships can be paid or unpaid. If they’re paid, the intern has to at least be paid minimum wage. They may or may not get some sort of school credit. And generally, paid interns can take on any tasks that the employer would consider them qualified for.
Unpaid internships are a bit more complicated.
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An unpaid intern is not – I repeat, is not – free labor. So, an unpaid intern must operate in a purely training or shadowing context. Meaning, they can’t do any work – at all. The internship is generally tied to a formal education program by either integrated coursework or academic credit, among other guidelines. But the underlying rule here is they can’t take on the work that normally an employee could do. So, no answering the phones, working with clients, filing paperwork or any other tasks that are actual work. They can shadow an employee, so the employee does a report and the intern also does the same report – but just to learn how to do it. The company can only use the employee’s report – not the intern’s.
And that brings us to regular employees.
Employees are under the control and direction of the employer and can do any work or tasks that the company thinks they’re qualified for. So clearly, an employee gives you the highest level of flexibility.
But yes, it is also generally a more expensive option among the three.
But again, with an employee you’ll have someone fully engaged with your business, who can hold multiple roles, and someone you can train to do the work according to your process and guidelines..
If you are positioning your business for growth, I would say hire an employee.