<aside> What’s this about? You can engage a worker as either an employee or an independent contractor. Employment is typically more costly, and gives the worker certain benefits that are typically not offered to independent contractors (like health insurance).

What do I need to do? Confirm that you want to engage your worker as an employee. Then, decide how to engage them: direct, professional employer organization (PEO), or employer of record (EOR). If they’re a foreign national, they’ll need a visa to be employed directly.

Contents

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Regulator guidance

• IRS: Independent contractor (self-employed) or employee?
• DOL: Employee or Independent Contractor Classification Under the FLSA
• State of California: ABC Test

Templates

• Employment contract
• NDA </aside>

Employees vs. contractors

You can engage a member of staff as either an employee or an independent contractor.

Employees are typically more costly, both in terms of financial cost and administrative burden. But employment is typically more appealing to the prospective hire, and usually includes a package of benefits (e.g. healthcare) in addition to the salary.

There’s a high risk and penalty for having someone who should be an employee misclassified as an independent contractor. So make sure you determine the appropriate engagement type before hiring someone as an employee or independent contractor.

• Risks of misclassification

Employees

An employee is someone who works under an employment contract, and therefore has extra employment rights and responsibilities that don’t apply to other workers, like independent contractors.

You can hire employees in one of three ways: direct, PEO, or EOR.

PEOs and EORs allow you to outsource employment administration — like payroll, benefits, and compliance — for a monthly fee. More on this below!

Independent contractors

See Engage a contractor.

Hiring employees locally

Once you’ve determined the engagement type for a worker, you’ll need to figure out how to hire them.

You can hire employees in one of three ways:

• Direct: Directly employ them through a contract with your organization
• PEO: Co-employ them through a Professional Employer Organization (PEO)
• EOR: Outsource their employment to an Employer of Record (EOR).

PEOs and EORs allow you to outsource employment administration — like payroll, benefits, and compliance — for a monthly fee.

If you’re a small organization (3-5 employees) we recommend that you hire your employees via a PEO. This is because:

• A PEO is more suitable than direct employment because it reduces your overall administration burden.
• A PEO is more suitable than an EOR because it reduces the relative cost, and reduces dependency on the EOR. (Having your own registered legal entity will give the organization greater flexibility should it decide to employ staff directly in the future; it also gives the organization more credibility in the eyes of donors and the recipients of its services.)

Once you’re ready to hire your employee, you’ll want to create an employment contract. Set out the main terms and conditions under which staff will be employed, including the duration/time/place of work, remuneration, benefits, holiday entitlement, termination, discipline and grievance, disclosures, trade union membership, data protection, confidentiality, and other policies. Consider legal counsel to review these for compliance.

• Cost analysis of EOR vs. PEO
• Recommended platforms

Hiring employees internationally

To hire employees from outside the US, you have two options: visa sponsorship, or EOR.

• Visa sponsorship: Encourage the employee to work from the US by offering them visa sponsorship.
• EOR: Allow the employee to work from their home country, and outsource their employment to an EOR.

< Run a hiring round

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