In many cases, a business doesn't need an employee; in fact, employees require more responsibility of the business owner and might even be a financial burden during slow periods. No matter how the business is doing, an employee still needs to be paid (both wages and benefits, although part-timers may have fewer benefits), and you still need to handle all the administration that goes along with payroll and other employee issues.

A contractor, on the other hand, can be brought in whenever the volume of work warrants another person's assistance. They can be paid by the hour or by the task (e.g., a flat fee for weekly bookkeeping), and there's little administration involved: You simply write a check for their services. There are no benefits involved, so you're not paying for those (although their hourly rate is likely higher than an employee's to account for the fact that they're paying their own benefits). They also don't come under labor rules for issues such as lay-offs or firing, which can streamline those processes.

It may appear that contractors are the way to go, but you need to assess that carefully. First, can you find someone who's willing to do the job on a contract basis? And, second, even if you can, will the government consider this person to be a contractor? If the answer to either of those questions is “no,” you need to go the employment route.

Generally, a person will be considered an employee if you have more control than they do over the duties or tasks that he's performing for you. For example, if the person works at your office, using your equipment, to do tasks that you assign to him, in the way that you specify, he'll likely be considered an employee. Other factors include the significance of the hours or contributions that the person makes: If he's working for you forty hours a week, in this case again, he'll likely be considered an employee.