Getting Rid of Employees
Question:
I finally found the answer to running my small business without having to deal with employee problems. I got rid of all of my employees. Problems solved in one fell swoop.
I’m not a tough-guy boss, anything but. I carried four of my six employees through the pandemic, despite the fact I had to take out loans from family members to make payroll. My small business weathered through the “great resignation” and “quiet quitting,” wondering what happened to employee loyalty. Then, when I fired an employee for lack of ethics, he sued me. He didn’t win, but fighting his bogus lawsuit stole time I needed for real work. I decided enough was enough and looked for other options.
Now, when I need work done, I visit websites, such as Toptal, Freelancer, Fiverr, Guru.com, Upwork, and FlexJobs, that link employers with independent contractors. I can find freelancers able to handle everything from project management to website design. I post a job and within minutes receive pitches from dozens of highly skilled applicants.
I was skeptical at first and worried I’d be dealing with sketchy individuals who couldn’t hold down real jobs. Then, when I needed an interim CFO, I found a top-notch professional who freelanced because she liked the freedom.
I wish I’d found this solution years ago. I no longer spend hours vetting applicants because if a contractor doesn’t work out, I let them know their contract has come to an end and look for a new freelancer.
I don’t see a problem with doing business this way. Do you?
Answer:
An increasing number of employers use the services of the nearly 77 million individuals, 36 percent of the U.S. labor force, who offer their services as independent workers or freelancers, https://www.forbes.com/sites/nigelwilson/2023/02/08/taking-a-page-from-inclusive-capitalism-the-us-gig-economy-is-here-to-stay/.
Researchers estimate that by 2027, more than half the U.S.’s workforce will take part in the gig economy, https://www.recruitmentmarketing.com/ta-media/how-the-on-demand-workforce-is-transforming-business-needs/.
Here are the landmines you need to avoid.
Regulatory issues
Make sure you manage each freelancer as an independent contractor and not as a de facto employee. Internal Revenue Service regulations dictate whether a worker is an employee or contractor based on how much control the employer exercises. You can read the IRS’s 20-point checklist here: https://galachoruses.org/sites/default/files/IRS-20-questions-W2-vs-1099.pdf.
Employers that misclassify in-fact employees as contractors have to repay back wages, unpaid income tax, and owed social security and unemployment insurance benefits and may be liable for civil and criminal penalties, damages, penalties and owed overtime, https://www.adp.com/spark/articles/2023/05/9-consequences-of-misclassifying-your-1099-contractors.aspx. FedEx and Lowes have paid multimillion-dollar penalties for misclassification.
The U.S. Department of Labor, which employs thousands of investigators actively searching out employers that misclassify employees as contractors, estimates that as many as thirty percent of employers do so. As one surprise example, strippers and exotic dancers qualify as employees rather than contractors, https://hkm.com/strippers-employees-question-matters/ and https://www.nlrg.com/legal-content/the-lawletter/employment-exotic-dancers-employees-or-independent-contractors#:~:text=Noting%20that%20the%20district%20courts,atmosphere%2C%20and%20facilities’%20maintenance.
Often, it’s the contractor who turns in their employer to the DOL when a problem arises, such as an accident for and the freelancer discovers they’re ineligible for worker’s compensation benefits unless they claim employee status. Home services agency Handy freelancers claimed they were entitled to the pay and benefits given to employees and won six million dollars, https://www.cbsnews.com/sanfrancisco/news/handy-app-pays-6-million-dollar-labor-violation-settlement/.
Managerial shift
Managing contractors takes less and more work than managing employees. You’ll need to shift how you manage. You can kiss goodbye to many of your former managerial tasks such as performance appraisal and disciplinary counseling. If your freelancers don’t deliver results on time and to expectation, you can cut them loose.
On the other hand, you may be accustomed to providing a general overview of what you want your employees to accomplish, knowing they’ll regularly touch base with you regularly for clarification and course correction. When you assign a task to a contractor, you need to define it specifically or you won’t get what you want but will need to pay because the contractor delivered “generally” what you requested. While the best contractors, like the best employees, offer employers a degree of loyalty, many contractors’ loyalty ends after they’ve cashed your check. If that contractor works for your competitors, you may lose proprietary material.
If any of your contractors need assistance from others in your employ, you’ll need to serve as the conduit, as they won’t know who to call among your company’s cast of revolving workers. Contractors also lack institutional knowledge which might limit their ability to handle certain projects or answer client questions about other aspects of your business.
Finally, if a contractor dazzles you and you want them to remain working for you, you may have to bite the bullet and declare them an employee.
© 2024 Lynne Curry, PhD, SPHR, SHRM-SCP
This is an amazing claim–that the employer doesn’t need workers, except only sometimes, then temps will do because it’s easy to let them go. It would be interesting to have more context about what this business is. Window washing? Painting? Copy advertising? Landscaping? Something with spurts of activity, apparently. Even in the businesses in the list, there’s bound to be return business, and part of being a successful business would be building relationships with customers, which generally requires having some customer-service minded employees who also know something about the business and about its customers–things you don’t get with temps. Lynne’s answer is compelling in that it takes the poster’s claim seriously and goes with it and the advantages. The legal pitfalls she cites in the “con” paragraphs are all the more compelling as follow-up. There are some real problematic aspects to this, and others, including DOL and IRS, could take notice, and not in a good way. What is this employer like? Toxic? Demanding–and not good at making expectations and steps to meeting them clear? Volatile and unpredictable? I wonder.
Thanks, Susan, I admit when the caller explained he’d fired everyone @ once, my jaw dropped, and I decided to do what you saw, to take him seriously.