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Archive for January 2011

So, Are They Employees or Not?

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Many companies these days rely on contract labor instead of full-time or part-time employees to address short-term projects or transitional employment needs. There’s no law against that – but the IRS does have some pesky regulations about when you can consider a worker a 1099 contractor as opposed to an employee. And those regulations are getting tougher.

How do you know whether to classify someone as a contractor? You can reduce your chances of getting hit with back taxes, interest and penalties by applying the following yardsticks:

FIT/FICA/FUTA Interpretations – These taxation standards each recognize different specific classes of workers as eligible contractors. Federal Income Tax (FIT) law recognizes direct sellers and licensed, qualified real estate agents. The Federal Unemployment Tax Act (FUTA) recognizes corporate officers, agent/commission drivers and salespeople. The Federal Insurance Contributions Act (FICA) specifies corporate officers, certain agent/commission drivers and certain industrial home workers or salespeople.

The Common Law Test – the IRS has a 20-question assessment that determines whether you can consider a worker a contractor based on how much control you have over that worker’s job tasks and processes.

Safe Harbor Rules – These rules allow you to classify someone as a contractor even if the Common Law Test says otherwise. Exceptions include cases where you never treated the worker as an employee for tax purposes, you filed all employment tax returns on that worker as a contractor consistently, and you can state a “reasonable basis” for contractor classification such as a judicial precedent, past IRS audit findings, or established industry practices.

Your industry may have its own classification quirks, so contact the IRS for clarification as needed. If you have a choice of employment arrangement and can’t figure out what’s best for your needs.

Better yet, we’d be happy to do a consultation.

Dan Hettrich is the director of sales at Acadia HR located in Austin, Texas. He can be reached at or 512-745-2985.

Written by Dan Hettrich

January 13, 2011 at 3:02 pm

Posted in Uncategorized

What Does It Mean to Be Nimble?

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When you hear the word “nimble,” what images does it conjure up for you? Nimble people move quickly and efficiently, with minimal wasted effort – and so do nimble companies. But even in today’s world of high-powered software solutions, many companies still have antiquated payroll methods dragging them down.

Offloading your payroll doesn’t always ensure efficiency. With some payroll companies you might have to get on the phone, get directed to the right contact person and then go through the entire payroll list with that person. The payroll company then gets the people paid  — and sends you a pile of paperwork that you can’t make head or tail of. You have to then input all that paper data to a spreadsheet or accounting program if you actually want to make use of it or analyze it. And if the data hasn’t been broken out properly, even basic analysis may prove impossible. You may even have to pay for a report that requires that data in a certain format.

If you want to stay nimble, make sure your payroll or HR outsource company gives you accessible online data broken down into formats that work for you, whether it’s job costing, departments, reporting, accounting (format), etc. You need to have a solid handle on your total labor costs to be as financially effective as possible.

For example, how much time did your people spend on project preparation? How many hours went into the manufacture of that 200-widget order?

Outsourcing all your reporting and payroll tasks can also slash labor costs dramatically. We recently took this burden off of a company that had supervisors going around collecting timesheets six days a week, while their shop spent hours dealing with old-fashioned punch cards instead of other much-needed tasks. Now they can simply “punch in” with swipe cards and upload field information through an iPhone app. That’s being nimble – and profitable.

Do you need to become more nimble? Acadia HR can help make it happen!

Dan Hettrich is the director of sales at Acadia HR located in Austin, Texas. He can be reached at or 512-745-2985.

Written by Dan Hettrich

January 13, 2011 at 3:00 pm

Posted in Uncategorized

Cost Comparison: HRO versus Internal Hire

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When does it make sense to use an HRO instead of hiring within your company? The answer depends in part on your long-term strategic needs and plans for that position. But financially speaking, how do the numbers stack up?

According to the Society of Human Resource Management, an HR professional with up to five years as a generalist will cost you an average of $57,500 in this part of the country. If we then add about 17% of the gross wage to account for labor costs and other intangibles (as we discussed in a previous post), you end up with a conservative total of $67,275.

Now let’s compare that price tag to that of hiring through an HRO. The HRO cost will vary on a per-person basis, but up to a certain level the savings can prove dramatic. Smaller employers may pay around $800 per person per year, while larger employers would see that figure drop to around $550 per person per year.  At those rates you’d pay the HRO $4,000 per year for five employees ($800 x 5), or $13,750 for 25 employees ($550 x 25). The unit dollar amount continues to drop as you add hires.

Now take the $67,275 you were ready to spend on that internal HR generalist. Divide this number by, say, $500 per person. You could employ up to approximately 135 people through the HRO before you stop saving money over in-house HR. But the value doesn’t end there. The money you pay the HRO counts as a business expense, not employee payroll. That means that it’s non-taxable, and you don’t have to make FICA or FUTA payments on it. Further, our HRO model also includes payroll and tax services as well.

Intrigued? Contact us! We’ll crunch the numbers with you to see if HRO-based hiring meets your needs.

Dan Hettrich is the director of sales at Acadia HR located in Austin, Texas. He can be reached at or 512-745-2985.

Written by Dan Hettrich

January 13, 2011 at 2:56 pm

Posted in Uncategorized

Do You Understand Your Real Labor Costs?

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When you create a position in your company, what does that position really cost? Most business owners don’t grasp this financial reality. Yes, they understand that most full-time jobs come with benefits of varying cushiness, representing an additional cost to the employer. But before you even factor perks into it, you have to consider the bare-bones necessities such as FICA, FUTA, Workers Compensation and other issues.

Let’s take as our example a full-time position with a straightforward $50,000 annual salary at a white-collar company. On top of the 50 grand we dole out to that employee over the course of the year, we can expect to pay:

  • FICA (Social Security): 7.657% gross wage = $3,825
  • FUTA (Federal Unemployment Tax): A flat $7,000 x .8% gross wage = $56
  • SUTA (State Unemployment Tax): In Texas, a flat $9,000 x 2.7% (new employment rate) gross wage = $243
  • Workers Compensation: .5% gross wage = $250 (actual percentage may vary slightly with job description)
  • Benefits: Could vary from 2% to 8% of gross wages, but let’s assume 4% = $2,000 (could be more if you have a 401(k)/Simple IRA.

That comes to $6,374 in additional costs, meaning that our $50,000 position actually costs the company $56,374 (or 12.75% more). Keep in mind that these figures don’t include other costs such as payroll outsourcing, job tools or equipment. Nor does it include perks such as paid time off for vacation or maternity leave.

Many staffing services leave their fee breakdown somewhat murky so that you may have trouble discerning their markup alongside all these items. In the case of Acadia HR, we break the numbers down so you can clearly see your total labor costs and fees as separate  line-item expenses. Contact us for more info on how we can help you address and optimize your labor expenses.

Dan Hettrich is the director of sales at Acadia HR located in Austin, Texas. He can be reached at or 512-745-2985.

Written by Dan Hettrich

January 13, 2011 at 8:44 am

Posted in Uncategorized