How to Hire Independent Contractors

How to Hire Independent Contractors

When you need help with your small business, you have to decide whether to hire regular employees or independent contractors, and knowing the difference between the two can save you money. Hiring an employee gives you more control over the person working for you, but it also makes you legally responsible for taxes. You should consider hiring an independent contractor, but you have to be aware of the guidelines that can make this hiring situation a little tricky.  In the past, some companies have hired workers as independent contractors but treated them as regular employees.  The IRS has really cracked down on this practice.  If they determine that your independent contractors have really been treated like regular employees, you will be held responsible for paying all of the back taxes, benefits, penalties, etc.  By following the advice below, you can show a true Independent Contractor relationship.

1. Step 1 - Create a list of questions to find out if the person you are hiring really operates as an independent contractor.  Find out how the person has structured their business, including their business name, if there is one.

2. Step 2 - Check or ask for any licenses or permits that the independent contractor may need.

3. Step 3 - Ask for references from people who have previously worked with the independent contractor.

4. Step 4 - Ask to see some advertising that the independent contractor has done, which includes listings in the phone book to help prove that contractor qualifies as an independent contractor.

5. Step 5 - Ask for business cards, letterhead, or visit their website if they have one.  These help to proof that this person is an independent contractor.

6. Step 6 - Have the contractor sign the independent contractor agreement that is included in this business guide.  This should establish pay, terms of employment and job expectations.  This will establish the independent contractor relationship and help you avoid tax problems.

7. Step 7 - Find an attorney who specializes in tax or employment law to review any independent contractor relationships you have established.

8. Step 8 - Make sure that the independent contractors use their own equipment.  This further defines them as an independent contractor.

9. Step 9 - Use IRS Form SS-8 to determine whether someone qualifies as an independent contractor or as an employee.

10. Step 10 - Save all copies of invoices you may have received to help prove that the individual is a contractor.

The Advantages of Using Independent Contractors

• You will save money

• You have more staffing flexibility

• You reduce your exposure to lawsuits

Disadvantages of Using Independent Contractors

• You have less control over your employees

• Workers will come and go and their will be less stability

• Your right to fire an independent contractor depends on your written contract.

• You might not own the copyright to any work created by the Independent Contractor.

• There is a higher risk of audits by the IRS when you use Independent Contractors. (The IRS makes more in taxes if you use regular employees).

*Make sure that you never ask an independent contractor to fill out a standard employment application.