Management is: "accomplishing group goals through other people." The success of management depends on the quality of the "other people." In other words, the key to your success as a manager lies in the people who work for you.
We are all familiar with the two most common ways of securing the people needed to get work done.
The first is direct employment. The company budgets for the overhead expense, and you hire the person on staff you need to get the job done. The second is outsourcing. Using money from the company’s operating budget (not overhead), you hire the services of an independent contractor to get the job done.
Perhaps, because you could not add a full-time equivalent (FTE) to the company’s head count, you considered using independent contractors on a regular or full-time basis. Entering into this type of business relationship can be tricky.
Direct employment is a clear-cut relationship governed by state or federal laws, under which the employer is required to pay the employee regularly and to withhold and report city/state/federal taxes, unemployment and workers comp premiums on the employee’s behalf.
The client/independent contractor relationship is not so clear-cut. An independent contractor is a self-employed individual or company, performing services for you, the client, under defined terms and conditions, rather than as an employee. In the case of a sole proprietor, often the employee and business are all rolled into one.
There are regulations or guidelines governing who may and may not be deemed an independent contractor. Most come from the Internal Revenue Service. However, the State or Federal Unemployment Commission also has a vested interest in the matter. Certain audits and rulings from the IRS and UEC have become important factors to consider when you make the final determination of contractor status because you must do so to the satisfaction of these governing bodies.
For example, using independent contractors on a regular or full-time basis makes it difficult to justify the "independent contractor" status. If you are audited, it is up to you, the client, to provide proof of status. It remains the client’s responsibility to decide whether to pay for work as an employee or independent contractor. There are penalties for making the wrong decision.
There is a third labor option that combines the positive aspects of direct employment with the positive aspects of outsourcing while minimizing employment risks. This third, less traditional, labor option is contract employment or employee leasing.
Simply put, through a contractual relationship with a professional employer company, full-time and regular part-time employees of the employer company are leased to you on a long-term basis.
Contract employees are available to you on a full-time basis as needed. Because their work with you is on-going, they get to know your company’s culture, they understand the group goals you are trying to accomplish, and they help you satisfy your constituents.
The relationship between the professional employer company and its employees is direct employment. It is a two-way relationship between the worker (employee) and the professional employer company (employer). The professional employer company assumes all employer responsibilities, rights, and risks by establishing and maintaining a direct employment relationship with the employee who is assigned by the employer to perform a client function on an ongoing basis. As the direct employer, it is a clear-cut relationship governed by state or federal laws, under which the employer company is required to pay their employee regularly, withhold and report city/state/federal taxes, pay unemployment and workers comp premiums, and provide a full range of fringe benefits on their employee’s behalf. The fringe benefits include health, dental, life, and short and long-term disability insurances, retirement, and paid personal time.
As the client of a professional employer company, the cost of the work and an administrative fee are charged to you the customer.
The advantage of employee contracting, which is usually most appreciated by the chief financial officer, is this business arrangement allows you to secure the ongoing work you need without adding to your company’s payroll or overhead costs. It turns your operation funds into positions, without increasing your head count, allowing you to get the work done for the long-term. Because the contract employees are not on your payroll, the cost is an operating expense coming from your operating budget.
The key to your success as a manager lies in the people who work for you. Now there are more options for you to accomplish group goals through other people.
Dennis Majewski is the president of The Gogolak Group Inc., a Brookfield-based professional employer service. He can be reached at Majewski@gogolak.com or (262) 827-8800.