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From an accounting perspective, hiring outside managers is more cost effective than hiring a full time employee. In addition to the obvious expenses of salaries, bonuses and other compensation, hiring an employee can cost a company in other ways. Recruiting an employee requires further investment in benefits, payroll taxes, insurance premiums, office space and equipment. Such additional costs aren't required for external managers. Companies can reduce cost by using these individuals for specific tasks according to business needs and can avoid the legal minefields of hiring and firing staff based on the ebb and flow of the market. Organizations can choose experts to perform necessary work as needed and can avoid the cost and hassle of providing additional education or training to current employees.
There are, however, inherent risks to businesses utilizing outside managers. The most dangerous of them is those individuals will be reclassified as employees. In that event, the company using the managers will be required to reimburse the IRS or state tax authority for delinquent employment taxes, interest and penalties. Although a business cannot insulate itself absolutely from reclassifications or contract audits, written agreements can offer a measure of protection from such charges.
A LegalZoom Management Services Agreement can help you and your manager determine the terms of your agreement and settle questions about work parameters, payment and responsibilities. Upon agreeing to contract terms, the company can then focus on the development of its business and the manager will be free to focus on the day-to-day management of the company.
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