We don't become entrepreneurs to do budgets or hiring or taxes. Unless you're one of those brave souls who make that your business. If so, we thank you for you service.
But most of us have employees, or increasingly, freelancers. The use of the gig economy has lead to a rise in the latter. Last month I wrote about the need to find a balance in what gig workers are paid.
If they don't find value in the gig economy, then you have a bunch of gigs and no one to fill them. Uber doesn't work without drivers. At least until five years from now, when they all drive themselves.
For the past eight years I have solely used freelancers in my business, never hiring a single employee. You pay a premium for a freelancer, and this strategy can lack consistency. But there is a simple reason why I do it: flexibility.
Instead of having to fit a job to my team I can fit a perfect team to the job. Not to mention, I don't have to spend time and money training employees. When you add training, benefits, and inefficiency to the equation, then the cost of a great freelancer is actually a better investment.
IRS has created set deadlines for reporting freelancers.
The IRS has eliminated automatic 1099-MISC and W-2 extensions for 2018, according to tax the preparation service Wage Filing's blog.
So why am I now paying attention to the latest changes in IRS policy? Because as we increase the number of freelancers we use, the process of documenting and reporting that activity becomes more laborious. It's cause and effect.
What that means is all reporting has to be done by January 31, 2019. Which doesn't seem like a big deal, but each late form for each contractor is a fine between $100 and $260. If your company isn't large, that impact can be nominal. But if you use 1,000 freelancers or contractors over the course of a year, that could be $260,000.
It's something to monitor before the end of the year, rather than at the beginning of next year. Small changes, gone unnoticed, can become a big deal. And there are plenty of easy online services that can automate the entire process.
But you should still use freelancers.
I'm not going to stop using freelancers -- it's how I built my business. I recommend using freelancers to a lot of beginning entrepreneurs that want to both mitigate risk and build out instant experience in their industry. Using freelancers rather than hiring employees gives you flexibility, saves you time and money on HR and training, and gives you an instant jolt of credibility in your industry.
Conventionally hired employees cost less on paper over the long term. But you can't get to a long-term without succeeding in the short term. And if your team has a collective experience of under a year, your pitch meetings aren't going to be fun. Trust me, I've been there.
I once grew a beard just so I wouldn't be that guy in his mid-20s who gets laughed out of the room because he doesn't look experienced enough. So I worked with freelancers that had 20 years more experience than I did. I learned from them, and they elevated the perception of my firm.
Beyond that I was able to create teams specific to each project, to engage freelancers only when needed, and over time I realized I was actually making more money.
I should add that no two industries are the same. What works in one doesn't automatically work in the other. So do an assessment. The cost of using freelancers is a higher price per project and more reporting during tax time. The benefit is being able to create flexible work teams that are only engaged when needed.
Find out what works best for you but don't just accept your current method without doing some math. I do the same when determining if I should switch to more employees every six months.