It is best to avoid hiring employees because the tax situation can be somewhat complex and because employees tend to increase the cost of your work significantly. Obviously there will be times when you need some help because you have too much work or something is simply too large to handle alone. The best way to deal with this is to hire subcontractors to handle excess workloads.

The problem arises when the term subcontractor is incorrectly defined. The IRS has certain requirements that must be met in order to consider someone a subcontractor. If you don't meet those requirements, your subcontractor will be considered an employee and you will be required to pay withholding and social security deductions plus penalties. The IRS has developed a list of requirements that must be met but you can be safe by meeting certain specific standards.

First, the subcontractor must be in business and must have a business identity, that is, they must have an address, phone number and some past business experience with other customers. They must control their own hours. If you have someone working in your place of business during certain hours and paid on an hourly basis, this person is an employee. Calling them a subcontractor will not impress the IRS. If they check on you and find this kind of situation you can be certain that they will deem this individual an employee and this will hurt you financially.

Normally, if you need someone to help you for one day, there is no problem just getting someone to help you and pay him or her for that day. However, if you need help everyday, make certain that those persons can be considered subcontractors legally.