4 questions to ask when adding new employees
Expanding your business typically requires an investment in people. Whether outsourcing, hiring contractors or adding new employees, there are numerous tax implications. Rob Calafell and Lorraine Bodden talk about how human resources, payroll and tax must all work together to get it right. Read more about these topics in the workforce area of our business growth resource center.
4 questions to ask when adding new employees: What you need to know...in a nutshell
Growing a business means more than just hiring new employees. It can also mean adding to the skillset of your existing employees. Whether you're increasing in production capacity, reaching new markets, doing new technologies, it means doing it in a way that's coordinated with your tax department.
#1) Are your needs best served by employees or independent contractors?
If you're looking for long-term placement at your company, an employee might be the right idea. An independent contractor, on the other hand, may be somebody that's good for a special project.
Many times, and often with good intentions, employers will categorize their employees as independent contractors. That may not always be the proper approach; state and federal governments are cracking down on this practice. If you have contractors that are performing the same or similar functions to your existing employees, or if you are the only client of your contractor, you may be at risk. It's important to know when you hire, how you classify your employees.
#2) Where are your people?
If a company is located in a state different from the state where the employee is actually providing service, that can create some compliance issues.
Companies have to withhold in a state where the employee works, as opposed to the state where they reside. Many tend to think of employee withholding in the same way they think of income tax filing. Generally income taxes are filed where someone resides, as opposed to where they work. When a company is employing someone to work in another state, they have to be thinking in terms of withholding taxes, where the employee actually provides the services and where they need to withhold on their services. Generally companies struggle with this when they're sending employees to work overseas as well.
#3) What kind of benefits are you offering?
Companies want to attract the best talent that they can. They want to be competitive in the benefits they offer. Some of the easier type benefits that a company might offer are
- Student loan repayments
- Tuition assistance programs
- Auto allowances
Now with the changing work environment and where laws are changing to accommodate same sex spouses and various types of civil partnerships. As benefits change, so do the tax implications.
#4) Are you receiving the workforce incentives available to your business?
Everything we've discussed so far may provide opportunity. Employees may be located in special economic incentive zones. They may be eligible for a federal work opportunity tax credits, training grants, or other incentives. You need to have a process in place to make sure you capture these benefits as you hire your employees. The way to do this is to make sure that tax, HR, finance and other functions talk to each other.