Choosing the right talent: A guide to hiring contractors or part-time employees

Companies today increasingly tap into the independent contractor market to fill gaps in their labor pool.  This is particularly common when solving a part-time or temporary need.    

A company once asked me about hiring a new Chief Marketing Officer as an independent contractor to work one day a week for four months while she finished employment elsewhere.  Other companies have asked about moving light-duty employees from full-time to independent contractors because they are not working 40 hours a week.  

The U.S. Bureau of Labor Statistics estimates that between 6.9% to 9.6% of all workers in the United States are independent contractors. While many are legitimate and appropriately leveraged, substituting part-time employees for independent contractors is risky and unnecessary.  So, let’s level set.  Who qualifies as an independent contractor?  And what should companies do to fill their part-time or temporary labor needs?

Think of It Like a Puzzle Piece

Imagine you need a specific piece to complete a project puzzle. Hiring a part-time employee is like having a dedicated member assigned explicitly to finding that missing piece. They work within your established structure, using your resources, take direction from you, and receive employee benefits commensurate with hours worked. This dedicated approach additionally comes with a commitment to payroll taxes and managerial oversight.  Because this person is your employee, you can also have them work on different parts of the puzzle.

On the other hand, engaging an independent contractor is like acquiring that missing piece from another completed puzzle. This person brings their own experience and tools to the table, focusing solely on delivering the specific piece (i.e., project) you need. They manage their own schedule, pay their own taxes, and follow their own command.  They offer flexibility and potentially lower costs. You relinquish nearly all control over their process and assume the risk of legal liability for misclassification.

Risks of Misclassification

The risks of misclassifying an employee—even a part-time employee—as an independent contractor are significant. The issue is that a misclassified employee misses out on employment protections, privileges, and benefits.  When a misclassification occurs, those economic benefits must be paid.  Damages include payment of employer-side FICA taxes, lost healthcare benefits (as applicable under company policy), lost leave benefits, lost workers' compensation coverage, lost PTO and paid federal holidays, and lost overtime for whenever an independent contractor worked over 40 hours a week.  These add up.

So What Are the Tests for Classification

For companies on the New Hampshire Seacoast, answering the question of who qualifies as an independent contractor and who qualifies as an employee depends on whom you ask.  In New Hampshire alone, there are at least four independent contractor tests: one for unemployment insurance, one for workers’ compensation, one for entitlement to wages under RSA 275, and one promulgated by the N.H. Department of Revenue Administration.  Then, on the federal side, the United States Department of Labor administers its own independent contract test, and the I.R.S. has another.  Plus, any company doing substantive work in Maine and Massachusetts may have to contend with their laws for when an individual can suitably be qualified as an independent contractor.

In most situations, however, the answer should be pretty obvious

Basic Requirements for an Independent Contractor:

• Free from Control: Unlike a part-time employee, you should exercise little to no control over how an independent contractor completes a project.  Setting general goals and deadlines is fine, but an independent contract should control the process and methodology.
• In Business for Themselves.  An independent contractor should be in business for themselves, meaning they’ve registered to do business with the State of New Hampshire and will send invoices for work performed.  At a minimum, they should have their own FEIN.  This also means that an independent contractor does not work exclusively with one company and is free to work for others—even competitors.
• Provide Unique Services.  An independent contractor should provide a unique service to your company outside its normal operations.  One way to test this is to ask if the independent contractor is replacing an employee––full-time or part-time.  For example, a company with a marketing department generally cannot hire an independent contractor to perform the work of an entry-level marketing employee on a part-time basis.  However, that same company can hire a brand consultant as an independent contractor to analyze the company’s brand in the marketplace and provide recommendations.

The Bottom Line

Understanding the distinction between part-time employees and independent contractors allows companies to strategically optimize their workforce. By making informed decisions, businesses can achieve greater flexibility, cost-effectiveness, and expertise while ensuring fair and legal practices within their teams.  The key is not to assume—as many do—that a part-time need can only be solved by hiring an independent contractor.  Often, it’s best to hire the person as a part-time employee or on a probationary or temporary status.

Brian J. Bouchard is labor and employment attorney with Sheehan Phinney Bass & Green PA in Portsmouth, New Hampshire. You can reach him at bbouchard@sheehan.com.