In a post last week about the potential effect of the new Healthcare bill on small business, I talked about the importance of assessing your business's cash flow position so you can weather the changes that will be coming. Insuring that your business is sufficiently cash flow positive is the first step.  The second step is to make sure that your business remains flexible and ready to change quickly.  That means not taking on non-essential capital expenditures such as a new building,  new equipment, or even extra people for that matter.

Yes, the healthcare bill offers some minimal incentives to qualified small businesses in the form of tax credits  to encourage them to hire unemployed workers, but those incentives don't last long.  If your business is in a state like California where it's very difficult to let people go once they're an employee, you want to make sure that anyone you hire using the tax credit is someone that 1) you need for the long term and 2) can afford even without the credit. But, there is another choice, and it involves hiring independent contractors. An independent contractor (IC)  is someone who has his or her own business and offers products and/or services to many individuals or companies.  You hire the IC to undertake a specific project.  You set the goals of the project, the metrics for success, and the due date; but here's the catch--you cannot dictate the details of how the job actually gets done.  In other words, you don't have as much control over the IC as you do over your employees. So as long as the job gets done to your satisfaction, your IC could do the work from a cruise ship in the Caribbean if she wanted to.

Now here's where you have to be careful because simply labeling a person an independent contractor does not make it so in the eyes of the courts.  Courts will be looking at the relationship to decide if you're following the rules.  If you give your IC an office, equipment, a salary, and other benefits normally accorded to employees, chances are the courts will conclude that your IC is really an employee in IC clothing.  FedEx definitely found that out when many of its operating agreements with its drivers, which labeled the drivers ICs, were struck down by the courts because it was found that FedEx actually controlled a good deal of the drivers' work, including what they wore.  

But if you do things right (and I recommend having an attorney draw up your IC agreements), ICs offer many advantages:

• You can use their expertise only when you need it.
• You don't have to pay many federal taxes such as Social Security and Medicare.
• You don't have to pay unemployment tax, insurance or worker's compensation tax.
• You don't have to provide benefits.
• You don't have to provide work space and equipment.

All of this adds up to big savings for your company and it gives you the flexibility you need in uncertain times.