For an artistic practice, design agency or other creative business experiencing robust growth, it might be time to start hiring employees and adding more staff. Preparing to add employees or independent contractors requires some serious research and thought. There are legal and tax requirements as well as how comfortable you are hiring and managing employees.
Depending on how your business is growing and what your goals are in your creative business plan, you may need someone to identify and pursue new customers and projects, someone to handle the finance/bookkeeping, more assistance to produce work, or more retail staff if you have a physical store. For creative entrepreneurs who want to stay focused on making new art or don’t have certain business skills, outsourcing them or hiring help is a great solution if you can afford it. Whatever the reason for your growing business, congratulations! And in order to keep everything running smoothly, it might be time to hire more employees – whether to help with art-making, sales and marketing, or general business maintenance.
You might consider hiring employees who assist you in your creative production with a job or skill that you don’t enjoy or aren’t as strong in as others. For example, a photographer might hire a digital editing wizard, or a sculptor might hire someone with vast experience in welding. You might also be inclined to hire someone to manage your social media accounts, which can assist you with additional marketing to meet new contacts and forge new partnerships. Or perhaps you just need someone to catalog and sort your inventory of artworks, pay bills, and invoice clients.
Whatever help you’re searching for, clearly define the nature and scope of the work with a proper job description to lay your responsibilities, expectations and desired qualifications.
What Type of Employee Should I Hire?
Under federal law, an employee is someone who performs services for you that you control completely, in terms of how and when the work will be done. For example, if you hire someone to come in for a fixed number of hours every work, assign them specific tasks and require supervision and final approval of the work product, then your new hire would probably be considered an “employee” under U.S. law. So, a personal assistant, bookkeeper, or photo editor that keeps set hours would likely be considered an employee of your business. In that case, there is a host of payment, tax and insurance obligations that go along with your new hire, which we will discuss in detail below.
By contrast, an independent contractor is someone whose work product you control, but whose process – what will be done and how it will be done – is up to them. For example, if your new hire is assigned a specific project, but is left to complete that project on their own schedule and using their own tools or methods, then they would likely be considered an independent contractor. Often times, independent contractors are highly specialized workers, such as writers, software developers, technicians, or craftsmen. If you hire someone to develop your website, for example, that person would likely be considered an independent contractor and your obligations under the law are much less strict.
The distinction between employees and independent contractors is especially important as it relates to copyright. Copyright law protects creative expression by granting certain rights to authors of original works fixed in a tangible medium. Because artists are in the business of creating copyrighted works, it’s possible that someone working for an artist may work on pieces that are ultimately subject to copyright protection, and it’s important to be able to figure out who owns them – the artist or the hired gun.
Under copyright law’s “work for hire” doctrine, works created by an employee (within the scope of employment) are owned by the employer, but works created by independent contractors are owned by the contractor.
For employees, whether or not a work constitutes a work made for hire will be determined by whether or not the copyrightable work created by the employee falls within the scope of his or her employment duties. If it does, then the copyright is owned by the employer; if not, it may be owned by the employee.
Although independent contractors typically own the rights to their works, they can also create works made for hire if the parties specifically state at the outset that the work is being classified as a work made for hire, or the work falls within one of the following categories:
- a contribution to a collective work
- part of a motion picture or other audiovisual work
- a translation
- a supplementary work
- a compilation
- an instructional text
- a test
- material for a test
- an atlas
If a you hire an independent contractor to prepare work (or a portion of a work) that does not fall into these categories, then copyright law says the copyright is owned by the contractor and the artist who hired her must get an assignment in writing.
Tax Requirements for Employees
Now that you’ve determined whether to hire an employee or independent contractor, it’s important to understand the tax, insurance, and other benefits obligations that come along with expanding your creative business. Note that the majority of these requirements will vary from state-to-state, so consult your local laws in order to determine what action is required on your end, or consult with an attorney familiar with the business laws in your state.
As an employer, you will be required to file certain employment taxes on behalf of your employee, while also withholding a certain amount from each of their paychecks. Note that you will only be required to do so if you hire employees, and not independent contractors, since independent contractors are required to file self-employment taxes, and those are generally handled by the individual.
As an employer, you are responsible for depositing and reporting employment taxes. That means that you’ll be required to withhold taxes from your employee’s pay in order to satisfy federal tax requirements. That includes withholding federal income tax. To figure out how much to withhold, an employer should compare an employee’s salary to the withholding tables in the Employer’s Tax Guide. At the end of every year, you must file Form W-2, Wage and Tax Statement to report wages, tips and other compensation paid to an employee.
You’ll also be responsible for withholding social security and Medicare taxes. Generally speaking, you’ll withhold a portion of your employee’s wages, and pay a matching amount yourself. Here, you would also take a look at the IRS’s withholding tables in order to determine how much will need to be deposited. In addition, employers need to withhold an additional Medicare amount – approximately 0.9% – once an employee’s salary reaches a certain threshold. Finally, employers will also be required to withhold federal unemployment tax, which they pay separately from federal income tax and social security/Medicare taxes. Employers are required to pay these taxes themselves – employees should not contribute any percentage of their salaries to this tax.
In addition to these taxes, employers are also responsible for withholding any state income taxes that may be required.
Health Insurance Requirements
Under the Affordable Care Act, businesses with more than 50 employees are required to offer health insurance to their employees. Like your tax obligations, insurance requirements vary from state-to-state. In New York, for example, you won’t be required to provide health insurance, but you’ll get a tax credit if you choose to do so. Buying a health insurance plan from New York’s Small Business Marketplace could make your business eligible for a tax credit as high as 50%. It’s also a huge draw for nabbing potential employees since individual health plans can be costly to maintain.
Though health insurance isn’t a requirement for small businesses, employers are generally required to carry workers’ compensation insurance for the benefit of its employees. Workers’ compensation provides benefits to employees who are injured on the job. It protects both employees from being out-of-pocket for work injuries, while also protecting employers from potential lawsuits when accidents occur. Although every state requires some measure of workers’ compensation insurance, specific requirements vary by state. For example, in California employers are required to carry workers’ compensation insurance even if they have only one employee, whereas in other states it’s only required for companies with more than a certain number of employees. The National Federation of Independent Businesses has a helpful chart of workers’ compensation requirements on its website.
Hiring and Terminating Employees
Once you’ve determined the types of employees you need (independent contractor or full-time employee?) you can move onto the process of actually hiring these employees. And, if you’d like to shield yourself from the possibility that the relationship may not work out, you should bear in mind that you’ll need to formulate termination policies that you can include in your hiring contract. That way, if the relationship goes south, you can make sure you acted in accordance with your agreement and the law.
At-will employees can be fired at any time, for any reason.
The interview process is often a nerve-wracking endeavor, and not just for the candidate, how can you identify the best person for the job? While it’s true that most employers say relevant experience and a strong educational background are often the best markers of whether or not someone will be a good fit for an organization, they also often expound on how important it is to identify whether or not that person will also be a cultural fit.
Rather than choosing to focus solely on these initial talent factors, consider a potential employee’s long-term vision for happiness and success at work, and determine whether that’s something they’ll be able to offer. For example, if you have a particular style of working, you may identify that someone is either too lax or too fast-paced for the work you’re offering.
Determine what is motivating a candidate to work for your business and your field. For example, perhaps you’d rather hire someone that is looking to learn from an artist because they, in turn, want to someday run their own creative business. Or maybe you want the total opposite and are looking for an employee who’s a whiz at accounting but has no desire to learn anything about art. Ask potential candidates questions that get to the heart of who they are. What’s their work style? What are they looking to get out of this position? What are their long-term goals?
Once you do proceed with a hire, you’ll want to have a hire contract drawn up that states the scope of employment, agreed-upon salary and benefits, and termination policies. In every state but Montana, employers are free to offer at-will employment to their employees. An at-will employee can be fired at any time, for any reason, except for a few illegal reasons. Likewise, an at-will employee is also free to quit their position at any time, which means you can both be left up a creek.
Since most states recognize the rights of employers to hire an at-will employee, we advise that you build an at-will employment clause into your hiring contract. That way, you won’t need to justify your decision to terminate an employee, nor face any legal issues if you’ve decided to do so. Terminating an employee is never easy, hopefully our hiring tips help you avoid firing anyone in your new business venture.
Employee Time-Off
If you’ve ever been someone else’s employee, you realize how important it is to have a break from work. Vacation and sick leave are not only expected, but help your employees stay happy and healthy. Most employers choose to offer paid vacation leave, but you are not required to do so under federal law, and most states have followed suit. While employers are not required to offer vacation leave, its rare to find a company that doesn’t offer these benefits for full-time workers.
Most companies elect to develop a system in which the employee accrues paid leave based on hours worked. For example, an employee that works 40 hours per week may accrue six hours of paid vacation time, equal to almost one day off. Once an employee has accrued the requisite amount of hours they wish to take off, they may do so. Essentially, this system allows employees to bank their hours and take them as needed.
Employers use this hour banking system to also offer employees the opportunity to stay home if they’re sick. In this day and age, it’s not unusual for employees to take “mental health days,” and this system seems to offer employees and employers alike the benefit of having an ask-no-questions type of policy. Likewise, both vacation and sick leave requests are often reviewed by employers on a case-by-case basis. It’s not unusual to tell an employee that their requested days off may not align with your company’s schedule, and therefore you are forced to refuse them the time off.
Employee Retirement Plans
Another fringe benefit commonly offered to an employee is a retirement plan. This is something typically offered by much larger companies given their resources and employee retention priorities. For a smaller creative business, there are other options. In fact, offering your employees retirement plans is often a great way to ensure your own financial future since you’ll also be putting money away into your fund. Offering a 401k plan also affords you certain tax benefits and deductions, which contribute to the growth of your bottom line.
Employee retirement plans generally automatically debit a certain percentage of an employee’s salary into a retirement account. In some cases, the company matches the employee’s retirement plan contribution with their own money, but that is definitely not a requirement of the plan and may not be feasible for a growing creative business. There are scores of different plans you can choose to offer, and we would advise speaking with a financial services firm that can easily set up these accounts for you. Keep in mind that retirement accounts are entirely elective, meaning your employees aren’t required to buy in.
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Expanding your creative business requires careful planning. From choosing full-time employees versus independent contractors, to managing expenses and employee payroll and hiring and termination policies, there’s a lot to consider so you can be best positioned to make decisions that keep your business moving forward.
