Hiring used to be kind of like being a Dragon on the Dragon’s Den.

Potential candidates came to wow you, determined to convince you that they were the right one for the job. You just had to decide who you wanted to invest in.

Now the tables have turned.

You can’t just post a job ad on Indeed and expect qualified candidates to come flooding in. 

Today’s workforce is looking for a living wage, but they want more than just a paycheck, they want a flexible schedule, and to do meaningful work in a culture of growth and belonging. 

I work exclusively with successful, established business owners and the hiring process has always been one of the biggest issues that my clients struggle with, even before COVID-19. There are so many restrictions and regulations in place that it’s hard to know what’s legal and what isn’t when it comes to hiring new employees and contractors. Like what’s the difference–and why does it matter to you as a business owner?

I asked my friend Kate Kilberg, who is a practicing business attorney, to join forces with me to help business owners understand both the legal side of hiring and how to create a meaningful work experience for your team. In this Q&A mini-series, we’re answering questions and sharing the expert coaching advice and legal guidance you need to build your dream team and grow your business. 

Part I: Exploring the impact of the pandemic on today’s workforce and the legal differences between employees and contractors

Dana Corey: Today we’re doing things a little bit differently. I’m so happy to introduce business attorney and my dear friend, Kate Kilberg. Kate, thank you so much for joining me here today. 

Can you start us off by telling us a little bit about your law practice? 

Kate Kilberg: Thank you so much for having me, Dana. It’s always fun to see you and talk with you. To give you a little bit about my background, I am a lawyer, and I have been in practice for 21 years now. I graduated from Harvard Law School and went to Washington, DC where I started my practice in a big corporate law firm. I really started out as an estate-planning attorney and I still do quite a bit of estate planning. That’s sort of my first love. 

One of my very first mentors told me that estate planning lawyers are sort of the last generalists, and that has proved to be true. Over the last 21 years, I’ve had the opportunity to learn a lot of other areas of law. Now I also work with both business and nonprofit clients. Those are my three practice areas: estate planning, business, and nonprofits. 

So that’s me. Here’s my first question for you, Dana– 

What impact are you seeing the pandemic have on employment status? And what are employees really looking for in today’s environment?

Dana Corey: You know, even if it is creating a much tighter job market, I actually think this is good. People are no longer willing to work so hard for so little in return. And when I say so little in return, I’m not just talking about compensation. I’m talking about the quality of life, the quality of work, I’m talking about trust, I’m talking about belonging. 

The last few years have changed the way we perceive the role work plays within the bigger context of our lives. People are placing more importance on having a life that feels balanced, fulfilling, and meaningful. 

Of course, having a job is really important. You still need money to pay for your life. People need to have a living wage, but now we’re also talking more about the impact of the work you’re doing,  who you’re working with, and how you’re being treated. That emphasis on what you might call the personal side of work has really blown up. That’s one really big way that the market has just changed. 

Kate Kilberg: And I think that really plays into what you just said.  I saw a survey recently that talked about what employees are looking for in a job, and the top two answers were salary and a flexible schedule. 

But the second question on the survey was, “what keeps you at an employer?”

And the number one answer was not the salary or flexible schedule, it was whether they were feeling fulfilled. 

Can you share your thoughts on how employers can really provide that fulfilling experience that employees are looking for in this job market?

Dana Corey: I always think that the most important thing is communication. Ask questions– what does fulfillment actually mean to the people on your team or the person you’re interviewing? 

We talk a lot in entrepreneurial circles about how personal success actually is and how it can mean so many different things to different people. That’s true for fulfillment as well. Some people are really fulfilled when they feel like they belong to a team that cares about them, or that they’re part of something that is bigger than themselves, that they’re working as part of a team and that their work, no matter what piece they’re responsible for, is just as important as anybody else’s to the big picture.

But I also think that a larger sense of fulfillment comes into play when we talk about longevity and turnover and employee retention. If you want to retain the best people, as an employer it’s crucial that you think about the long-term outcomes for your employees. 

How are you growing and investing in your people, personally and professionally? 

After three years, or five years, of working with your company, what will they know that they don’t know now? 

How will they be empowered to show up and make an impact? 

How will working for you help them grow, develop, and increase their abilities ? 

The intangibles like the way you take on the world, your confidence, all those things. I think that is part of being fulfilled, too.

Now it’s my turn to ask you a question, Kate. 

What does a business owner need to take into account when deciding between hiring an employee or hiring an independent contractor?

Kate Kilberg: That’s a really great question that’s come up a lot, even pre COVID, that was becoming more and more of an issue. I think now, particularly in the gig economy, where there are more and more people who are sort of doing this great resignation, and wanting to hang their own shingle, there’s a lot more people who may want to be an independent contractor. 

The reason that it matters is that under the law, certain rights are available to employees that are not available to independent contractors. On the flip side, there are also certain rights that are available to employers when they have employees versus independent contractors. 

I think it helps to think about, why does it matter? Why do we need to know the answer to this question? 

And what I started to say earlier is that, as an employee, you have certain rights under certain statutes–both federal and state statutes–that you don’t necessarily get under an independent contractor arrangement. So things like minimum wage, or wage and hour laws, are intended to make sure that employees get paid for their time, on time. 

That’s one reason it’s important to be aware of the difference between employees and contractors. As an employer, there are things that you want to know when you’re making this determination. 

For example, an employer can be vicariously liable for an employee that does something wrong on the job, whereas that’s not the case with an independent contractor. 

Another big area where this comes up is around intellectual property. If an employee develops intellectual property, it’s generally presumed to be the property of the employer. Whereas if you hired an independent contractor, the independent contractor generally is presumed to own the intellectual property.

There are a number of reasons why it’s important to classify what type of relationship you have, including so that you know which rules apply. A number of tests are used legally to define these relationships. There’s a variety of different laws that affect employment relationships, everything from tax withholding, to workers compensation to the FLSA, the Fair Labor Standards Act, which is a federal minimum wage law. Because of all these different factors that need to be considered, the tests are all different, but they’re generally based on a series of factors that look at things like:

• Who is directing the work? 
• How permanent is the relationship? 
• How is the worker getting paid?
• Who is paying the expenses? 
• Who profits or takes a loss from a business?

There is no real, hard and fast rule to say, “this is definitely an employment relationship versus an independent contractor relationship.” 

It is something you want to be really careful about. 

I also recommend periodically auditing those relationships. For example, if you’ve had an employee that is now working from home on more of a part-time basis and taking on other clients, do you want to consider switching them to independent contractor status?

Dana Corey: It’s really interesting to hear you say that because, as far as I know, every state has its own litmus tests. I’ve been told that in Oregon, which is where I’m based, that if it smells like an employee, it’s an employee. There are laws around employee status here that are more stringent than they are even for the IRS.

Kate Kilberg: That’s true. Oregon tends to define an employee really broadly. What I have seen in experience is that the various regulatory agencies, particularly tax agencies and the Department of Revenue, really want businesses to be withholding income taxes, which is required in an employment relationship. If you’re not an independent contractor, the employer has to withhold taxes.

Dana Corey: I can’t tell you how often that question comes up in my work with my clients. Thank you so much, Kate.

Kate Kilberg:  I was really focusing on the legal considerations, and I will say that there are financial considerations at play, too. I think there’s some belief out there that hiring an independent contractor is maybe more expensive to the employer than an employee–maybe the employee is more financially beneficial? And I think it really depends on the situation. 

My advice would be to look at the financials, not just to assume that one is going to be better or worse for the employer.

The Right Employment Strategy for Your Business

Whether you hire employees, contractors, or a combination of both, hiring the right people for your business is a process. The right employment strategy for your company needs to take into account:

⇒ How to provide growth opportunities to nurture and retain your A-team players

⇒ What compensation or employment incentives you can offer beyond a living wage 

⇒ Your legal obligations under your state employment laws + federal regulations

⇒ The practical + financial impact of hiring an employee vs an independent contractor for a particular role

⇒ The Fair Labor Standards Act can be accessed here

Get more expert insight and legal guidance to help you navigate the hiring process, including Employment Contracts, Non-Compete Agreements, and the changing priorities of today’s workforce. Click here to read Part Two of this Q&A Mini-Series on the Legalities and Strategies of Hiring for Business Owners.