I am going to start making cakes and a friend of mine want's to help, she has worked in a bakery before in a grocery store and would be a big help since my work sechulde would limit me she could do the work while am at my other job so we could get orders out. But how should I pay her by the hour or job. remember we are just starting up pay will go up as orders increase. thanks

ACheck out a salary survey in your area (such as payscale.com) to see what cake decorators typically make, usually they start in the $10-15/hour range. Don't forget to pay applicable payroll taxes and workers comp coverage as required.

You have to discuss this with your friend.

She can call herself a self-employed subcontractor in which case she pays the workers comp and other payments.  You can pay her by the job, even a set fee instead of an hourly rate.

Or you can call her an employee, but then you are on the hook to pay her and her payroll taxes even if you lose money.  Not paying an employee on time is a good way to get into deep doo-doo with the IRS.

Beware, if you call her a sub contractor she will have to have her own business license and will be on the hook for those taxes you aren't.

AYou can be an independent contractor without needing a business license, I did it in 2011. But self-employed income taxes are higher, and it's a bit of a pain to make sure you pay enough, and on time, and to the right places. You'll also have to issue her with a 1099 at the end of the year so that she can file her taxes.

Are you sure she knows she's only going to be a helper and not a partner though?

Yes of course the self-employed taxes are higher. 

But a startup business will have such irregular cash flow that the commitment to pay an employee even a variable number of hours per week will be difficult.  Once you hire an employee, you MUST pay those wages and those employer deductions on time...even if you yourself go home with a hole in your pocket as a result.  Should you fail to do so, then your employee can report you to your state labour department as well as your tax collectors. BIG trouble.

And NO "the pay will go up as orders increase" is NOT the way to discuss this.  For an employee the hourly rate stays the same, what goes up is the number of hours worked.  Once that employee gets to whatever your state defines as "full time" then additional employer expenses may kick in. YOU better find out what those would be.

So whichever way you do it, get it on paper and both sign two copies--one for each.

AAlso be aware that if you hire her as an independent contractor but treat her as an employee (see the common law rules in the link below) you will be held liable for the relevant employment taxes anyway.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-%28Self-Employed%29-or-Employee%3F