Using Co-Employment Services
If you're a small retail store with only one or two employees, setting up a trouble-free payroll system can seem like a lot of trouble. It is. Why not just pay your employees cash under the table? Because it's against the law and will soon get you in trouble. One disgruntled ex-employee can blow the whistle on you and bring down your hard-earned business. You'll have to pay back taxes and penalties, and may even be incarcerated.
An independent contractor is not an employee. However, to be considered an independent contractor by law, the person must truly be independent. If you require him to be in your store every day at 8 A.M., he isn't independent, he is an employee. If he can come and go at will, but has a specific task to do—such as clean the store—without a required time to do it, he is an independent contractor and not subject to employment laws.
All states allow employees to be hired by a professional employer organization (PEO) as the employer of record. Technically, the employees work for the PEO. Practically, you manage the employees as if they were your own. This arrangement often is called co-employment. Variations are called employee leasing and staff leasing.
The obvious advantage to co-employment is that your small retail store doesn't have to be burdened by the paperwork of employment, payroll taxes, and worker's compensation insurance. The PEO handles all that. In fact, the PEO typically advises you throughout the hiring process, helping you find candidates and even doing background checks as needed. Some PEOs will actually do the selection and hiring for you, sending you their candidates for final approval. What services you get from a PEO depend on the contract you sign.
The downside can be the cost. Many co-employers will charge you a flat percentage over and above the employee's wage. The rate can vary depending on the PEO and services, typically ranging between 25 and 35 percent. For example, if you hire a clerk at $10 an hour, the PEO will handle all the payroll records plus manage hiring and firing for a rate of $12.50 to $13.50 an hour. For a small retail store that only hires a few people each year and doesn't want the hassle of payroll, it can be a real bargain.
Unfortunately, not all PEOs are reputable, and can end up putting you in a worse mess than if you'd just handled your own payroll. Make sure that the PEO you select is reputable. Your business banker or accountant may be able to recommend such a service to you. Also, look for membership in professional organizations such as the National Association of Professional Employer Organizations (NAPEO). Its website, www.napeo.org, offers a list of members by location.