Prior to the global outbreak of the COVID-19 pandemic, most shipping and delivery companies were focused on aspects such as improving speed of delivery and competing with startups known for their speed and flexibility. As reported by Pairin, the arrival of the pandemic created a huge shift in the logistics and delivery sectors, with companies like Amazon offering one-day shipping and the demand for shipping skyrocketing as the online sales boom exploded. If your company is enjoying a strong position in otherwise uncertain economic times, you may need to expand your team and bring new workers onboard. If you were wondering whether hiring or contracting workers is the better choice, the following considerations may help you make a decision.
Control vs. Autonomy
When considering whether to hire or rely on freelancers for shipping, the ultimate consideration should be that of freedom vs independence. If you need workers to use specific tools, work in a specific environment, or clock in a certain number of hours per day, then they should, by law, be employed. Having workers officially on the payroll means being able to supervise the way they carry out their task, to set up specific safety and procedural rules, and to create a culture promoting company values such as speed, efficiency, optimal quality services, and the like. If, on the other hand, you occasionally need an extra set of hands to fill boxes, load items, or even work off-site at their own pace, then contracting at a fair rate per hour may be all you need.
The Necessities Involved in Hiring a W2 Employee vs a 1099-MISC Employee
When you hire an employee, you must report wages, bonuses, tips, and all qualifying compensation using the IRS form called W2. Doing so means that you will have additional administrative duties – including filing and withholding Social Security Taxes. Meanwhile compensation for independent contractors needs to be reported using Form 1099-MISC. If you hire an independent contractor, one benefit they will enjoy is that of receiving a larger amount of compensation upfront (since withholding taxes will not be charged). However, they may need to make quarterly estimated payments of these taxes so as to avoid fines when tax filing time rolls around.
Why is Choosing the Right Employee Classification Important?
The IRS has a very clear idea of what a designated worker is and it does impose harsh penalties for companies deemed to have misclassified workers. For instance, to classify as a 1099-MISC worker, an individual must be able to fully determine their work schedule. This means that, should you rely on contractors, you need to be very specific about the amount of work that needs to be completed within set deadlines, yet you cannot control the number of daily hours the person works. You should also be prepared to allow contractors to work for other clients (i.e. you cannot demand exclusivity.)
Companies in the shipping and delivery services have had to adapt quickly to changing needs and growing demands. If your company requires new staff, then it is important to consider what type of worker you truly need. If you wish to control hours, impose the utilization of specific tools, and insist that workers follow certain procedures, and you wish to have their work supervised, then hiring rather than contracting is the best choice to make from a legal standpoint.