Employees Are Created by and for Big Business and Big Government

After many years of interviewing, hiring, training, supervising and firing employees, I have come to the conclusion that employees are bad for small business.

Let me tell you why.

The tax code of the U.S. is the main reason that we have employees doing the work of business entities rather than independent contractors. Even big corporations are trying to do away with employees as much as they can, without getting caught, by shifting operations to other countries where the difference between employees and independent contractors may not be as pronounced as it is in the U.S., or by downsizing their fulltime employees and jobbing out the work to other businesses or to individuals who are retained as consultants, which often means an ex-employee who is permitted to keep working for his ex employer but with no benefits, no contract and no security.

Employees, as I have seen them evolve over the past 25 years, have become another aspect of the welfare system, where the employees think that everything is for them and they have to give nothing in return - that they have a right to be lazy and non-productive, and a right to get periodic cost of living raises and salary reviews (meaning raises) even though they don't perform.

Of course, I have had some employees who were model employees, but I'll try to get to that later in the article. Model employees are hard to find and more difficult to keep.

Employees seem to have some inner sense which tells them to grab all they can from their employer and do as little as possible, for fear of taking away similar opportunities to do very little from others, I guess.

Employees are cubicle-type people, who sit in a cubicle or work station doing a well-defined job and fight most opportunities to something more than that. In other words, most employees are persons with a limited number of skills, and increasing in our society persons with a limited number of skills are becoming obsolete and worthless to a vibrant business entity.

I'll be quick to acknowledge that an employee's mentality is not something to be blamed on the employee. There are some historic reasons for this. (As an aside, I think the Japanese have a derogatory word - salarymen - to describe employees.)

The U.S. has not permitted individuals to raise capital to start their own businesses (see other articles), which has forced individuals to turn to big corporations and big business for their livelihoods, as employees, rather than entrepreneurs.

Then, the nation's public schools and non-profit colleges and universities, at public expense, have offered courses of instruction which prepare graduates to go to work for big business and big government, but not for small business. Small business doesn't use discounted cash flows; they'll accept any money which comes along. Very few educational institutions offer courses to train people how to invent or how to be an entrepreneur, or devote very little of their resources to such instruction.

Students have gone to colleges and universities to obtain jobs upon graduation, not to seek opportunity, which is a major adverse factor in our educational system and orientation of laws and society as a whole. We should as a nation be encouraging people to work for themselves, and do so in a way which can be rewarding financially. We haven't found how to create the rewards for self employment because of the various restraints in our economy (discussed elsewhere). Accordingly, for a variety of complex reasons, people look for jobs, but don't necessarily like it, especially where they see the increasing lack of loyalty by employers (with downsizing and moving shops to other cities and countries). The quality of the employee suffers, and the economy is injured.

Another factor to consider is that the way in which employees are hired makes the lack of many skills a virtue. Employers advertise their needs under a classified area of employment such as secretary, accountant, elevator operator, and employees after being hired believe that they shouldn't have to do anything more than was advertised.

If employers were to list what they really wanted, the cost of classified advertising would be too high, and the value of classifieds would be gone, because nobody would no where to look for multi-skilled jobs, especially if every job started off as Multi-skilled opening....

So we get back to the problem. Employees have few skills, and were brought up this way to make them suitable for big businesses and big governments, which no longer want to hire the people they have trained. Employees sensing this are no longer as productive, although there is a minimum amount of productivity one could expect out of fear of losing their jobs.

Small business can't hire employees, especially at the lowest levels of small business, for the following reasons.

• There isn't enough money in many small businesses to pay a good employee what he/she can earn in a plush corporate or government job (which uses tax money from the small businessperson to pay excessive compensation to such employee);
• There is a disproportionately high overhead cost to have one or more employees, who demand more space than a small businessperson can afford or would use himself/herself to do the same work;
• Employees cost too much in payroll taxes and benefits;
• Employees may have to be bonded and the employer covered by liability insurance for negligence of the employee;
• Employees have to be trained, and replacements trained, and their replacements trained, in a never ending training program which takes the businessperson away from his/her own work;
• Employees of small business have nowhere to go in the organization, and quit as a result; An employee of small business, especially a single employee, has nobody to talk with or commiserate with, which makes the employee feel awkward and out of place;
• Employees have to be serviced by employers, which wastes the time and money of the employer;
• Employees lack the skills to do much of what the owner of a small business needs to have done, and the owner can do things more quickly and accurately than an employee;
• A small business owner cannot perform his/her own activities in the business and at the same time supervise one or more unskilled employees who have little interest in doing anything except cashing their weekly or biweekly paychecks;
• Employees have no status in most small businesses, unlike the status they have in telling people they work for General Motors, which somehow seems to rub off on the employee, until the employee is unceremoniously dumped by GM.

To get the work done, small businesses should look to independent contractors, and in due course they will be offering their services through specialized websites such as LawMall (tm) on the internet.

Meanwhile, the IRS is trying to crack down on the reduced revenues caused by this movement of all businesses away from employees, by claiming that independent contractors are really employees. So be careful and only use independent contractors when they in fact are not employees. Some of the factors are whether you determine the hours they work; whether they are paid by the job or by the hour; whether they work in your office or some other place; and whether you have control over where they work and what they do.

As things are now developing, independent contractors are one step away from the underground economy (and barter). The best thing from an I.R.S. standpoint (to avoid problems) is to make sure you use 1099's to report income to independent contractors; not have them work in your office; pay them by the job (which is unrealistic, so continue paying them by the hour, with more risk, of course); and to let them do their own work without micro-management by you.

You might be interested in my proposal for revitalizing the use of employees by small business. I call this by a rallying cry The First 3 Are Free!, which is what I have asked Congress to enact into the nation's laws (without any success to date). I would have Congress declare that any person (you, me or General Motors) can hire up to 3 employees (designed by the employer) as employees for whom the employer would withhold no payroll taxes and as to whom there would be no restrictions whatsoever such as minimum wage or maximum hour requirements (other than obvious ones such as not beating them, not poisoning them, and not hiring children).

If this were enacted, small business would then be able to hire 1, 2 or 3 employees without any minimum wage requirements, payroll taxes, reports, forms, regulatory hassles, brown envelope problems, and the like.

The employees would go to the U.S. Post Office to report and pay their own withholding taxes, if the U.S. government found that there was sufficient profitability for the government to get involved. It is conceivable that most small businesses would be paying less than the minimum wage for most of these employees with the result that there would be little withholding, and the government's expenditure in collecting such withholding would exceed the amount collected, and that it would be better for government to let the employees pay their taxes at the end of the year, without any withholding.

For persons interested in my letter to President Clinton asking for this change in the nation's laws, click on Letter to President Clinton.

Copyright © 1995 by Carl E. Person. Permission is given for non-commercial users to send a copy of the data processing file for this work by electronic means to a specific individual for his or her own use, and then only if the entire file is sent, including this copyright notice, but no permission is given for anyone to copy or transmit this file for or to any person for public viewing or downloading. It is intended by the author of this work that the work shall be made available in electronic form only through LawMall (tm).