Freelancers a good idea?

you should be nervous...read this carefully

http://www.law360.com/articles/258252/5-ways-to-avoid-employee-misclassification-suits-abroad

and this

http://dpeaflcio.org/programs-publications/issue-fact-sheets/misclassification-of-employees-as-independent-contractors/

Lawsuits due to misclassifications of contractors as employees is very rare as long as you follow the proper guidelines/agreements. The companies that were sued usually pushed the envelope.

I think your problem is not that they didn't want to become employees but didn't want to join for equity and low pay, right?

If you gave them market salaries and your opportunity is good you should be able to get people to join you FT.

Its very common for engineers to decline to join a startup if they have existing gigs and prefer to work as a contractor/freelancer. Its not a red flag at all. Many startups had to do that because until they got their MVP its hard to show ANYONE how valuable the company is.

The upside for you is that you get to keep your equity until you get traction and then your equity is more valuable and you don't have to give up that much to newer employees/investors.

what about NDA's and hiring freelancers ?

And what about non-compete in hiring freelancers?

Having been on another side of this IRS compliance issue, I can tell you that I know of a company that had to pay more than $1M -- on more than one occasion -- and now uses no freelancers. Directly, that is. All freelancers become "employees" of an "employer of record." That's the company that actually hires employees who are already approved by the company that has work that needs to be done.

Search phrases such as managed services program, vendor management solutions, employer of record services, independent contractor compliance.

This "employer of record" is not involved in obtaining work for its employees, having any involvement in the quality/quantity of work the "employee" does, etc. Basically, it takes care of everything involved in the hiring process and payment. The "employee" submits their timesheet to the "employer of record", which adds their fees and then submits their invoice to the employer. The "employer of record" takes care of processing payroll. (Did you know that workers in some states must be paid at an overtime rate if they work more than 8 hours in a day? And that in other states, the bar is working more than 40 hours in a week? There are more compliance laws than we can imagine.)

The result? No IRS fines, compliance with all state and federal laws regarding work rules, payment processing. And no, I am not an "employer of record." I have done freelance work in this way for a few companies.

OP here-

Thanks for the tips and answers people, duly noted.

However, I still have one (key) part of my question unanswered- from the POV of getting work done- is it better to have employees who will come to your office every day and work together or is it ok to rely on them to work independently and remotely?

To add some more context- I'm looking for people who have about 1-2 years of experience and since they have just landed a secure job, I'm guessing they prefer to stick to their 9-5 jobs and work for me after normal working hours- as freelancers.

Look carefully at what you want your apps to do.

If they are very simple - and I mean coding simple like slapping up some dots on a Google map - then freelancing is probably fine.

If you're trying to do something significantly more complex, and/or performance is a big issue, then I'd be super careful.

The problem with freelancing is that you're getting a one shot deal. The freelancer may or may not be available in the future, and their cost is definitely not set in stone.

The result can be that you wind up with a product that will have to be rewritten every time you want something changed, or else you have to hire the same person for much more than originally they were paid.

Frankly, the tax consequences are piddling compared to product issues.

I have the distinction of having "the worst app I have ever seen" when shown to an ex-Google app developer, so I can attest to this being a potential problem.

"There are two of us who will take care of marketing and concept generation..."

So you've got a person who can sell a bridge, and another person with a pretty good idea for a bridge, but no-one who actually builds bridges.

<em>Your core team is too thin.</em>

There's a lot more to software development then functional code. You need to document it, both externally for users, and internally for your development team -- unless your app(s) will only ever be coded by one person who can keep everything straight in their head.

Hire a freelancer / consultant / partner who can serve as a <strong>Project Manager</strong>. Someone who understands software development from both a technical AND managerial perspective. Empower them to build the dev team.

Look for a history of successfully delivered projects via <a href="http://en.wikipedia.org/wiki/Scrum_%28software_development%29" rel="nofollow">SCRUM methodology</a> on your missing third person's resume. SCRUM will give you a common language for working together. You can learn-as-you-go and your new hire can teach you by example. Doesn't have to be SCRUM, but you need something to navigate by and SCRUM's an effective choice.

OP:

Hello and thank you once again for your valuable inputs (especially in a time when I need this the most)

I also have Freelancers who want to work full time, but do not want to be bound by contract. I'm ruling them out for the reason that was also mentioned here: uncertain availability in the future

I'm considering partnering up with a freelancer duo who have their little startup as well - and compensate part in cash and part in share of revenue - to assure commitment. Any thoughts on that?

Even though the two of us would be involved in concept generation and marketing, both of us have a technological background and have previously worked in tech for brief periods. Even though we're a bit rusty, we plan to spend a month brushing up our concepts so we're not completely clueless. My partner has undergone trainings on SRCUM methodologies and both of us have previously been involved in tech projects (however, as developers and not managers). Ideally my partner will eventually take the role of project manager as I focus on partnerships and marketing.

In the scenario that I cannot partner with one of the scenarios, I'm worried because the city I plan to work out of does not have a whole lot of good techies. What is better- to have a good developer working remotely or an average developer working with me out of my office?

Thanks a ton again for all your answers and valuable inputs. I've duly noted everything and will make use of all your inputs.

Best regards.

A higher quality remote contractor will produce exponentially greater results then a less experienced local one. Onus is on company leadership to manage effectively.

Here's <a href="http://mashable.com/2011/03/15/subcontracting-freelancers/" rel="nofollow">an excellent primer</a>.

Read this article:

http://steveblank.com/2014/09/03/should-founders-know-how-to-code/

The short quote to remember, if you don't want to "waste" time reading the full text:

"A founding web/mobile team without a coder past the initial stages of Customer Discovery is not a startup"

To my knowledge, the number of successful tech startups with products initially developed by freelancers is exactly zero. If your startup is about manufacturing products, with plants and so on, you can use freelancers to develop your internal accounting software or alike. Not your product. Never. Maybe you will be the first in the world who will succeed with a product developed by freelancers, but in this case, you should write a book with your story. It will have much more success than "The Lean Startup" and you will be richer than Warren Buffet. Simply because everyone on earth want to become rich without having to build a product. Your freelancers know that. They know they can take your money while you have some, before you fail. They know you have no chance to succeed without a tech founder. So they want your money right know.