Helpful Tips for Hiring Independent Contractors

There are some small business owners who prefer to work with an independent contractor, instead of hiring full- or part-time employees. There are several benefits offered by using independent contractors, such as more flexibility, the ability to easily terminate the relationship, and avoiding paying FICA taxes. However, there are certain things a business owner needs to know to ensure their relationship with independent contractors is mutually beneficial. Keep reading to learn some helpful tips.

The Definition of an Independent Contractor

An independent contractor is a person who doesn’t work for another company or individual. By definition, the person is independent, which means they are not an employee of the company that hires them. A good example of an independent contractor is a cleaning company. While the service comes to the business building to work, the cleaning service employees are not employees of the company.

An independent contractor is considered to be a business owner. They are required to report income using a 1099 generator on their personal tax returns. They also have the right to deduct business expenses.

Independent Contractor vs. Employee

For several reasons, most of which relate to payroll taxes, the IRS is specifically interested in if a worker is classifying their employees properly. The IRS considers a worker to be an employee of the business unless the business has proven this isn’t the case.

The IRS will determine the status of a worker on a case-by-case basis. Several factors are considered, including control, financial, and behavioral to determine a person’s status. If a person is unclear about the status of individuals who work for a business, a determination can be requested from the IRS.

If a business misclassifies a new worker as an independent contractor, when they do not meet this classification, it may result in tax fines, penalties, and liabilities for the business. As a result, the business owner must ensure the person they are hiring is an actual independent contractor and not an employee.

The Form W-9 for an Independent Contractor

The Form W-9 provided by a business has to be signed by all independent contractors when they begin doing work. This form is required for the tax ID number, employer ID, or social security number. The W-9 form provides the same purpose as the W-4 form for an employee who has just been hired. If a contract worker does not have a tax ID number on file with the company, they may be subject to withholdings from the payments they receive.

The Paperwork Required for a Newly Hired Independent Contractor

Regardless of if a business hires a new employee or an independent contractor, specific paperwork will have to be completed. One type of paperwork that is needed is the form W-9 (mentioned above). It’s also necessary to get a copy of the person’s resume or their personal qualifications for the business owner’s record. This information is necessary if an audit occurs. It’s also necessary to keep a copy of the contract. Even a simple relationship needs to include a contract.

Check All Credentials Before Hiring an Independent Contractor

When a business owner is ready to hire a new employee, they will check their references, they should check a contractor’s credentials before hiring them. For example, if a business is thinking about hiring a bookkeeper, they should ensure they are hiring someone that doesn’t have any type of criminal record. It’s also a good idea to conduct a background check on all potential contractors, just like a business owner would do before hiring an employee.

If the person being hired as an independent contractor is an organized business, it is a good idea to check with the Better Business Bureau. This allows them to ensure that there are no complaints on file against the business. Also, don’t forget about one of the best ways to learn about someone – a quick online search.

How to Pay Independent Contractors

When it is time to pay an independent contractor, the process used for this is rather simple. It is possible to pay by the job done or by the hour. In most cases, no income tax will be withheld by the company. Also, the employer will not withhold FICA taxes or any other type of employment taxes.

There is no question that there are several benefits offered by hiring independent contractors over employees. However, if a business owner wants to ensure that they properly hire an independent contractor and have all the paperwork in place, they should use the tips and information found here. Doing so is going to pay off in the long-run and help ensure that the independent contractor can provide the services needed, regardless of what they are hired to do. Be sure to keep the information here in mind to make the most of the independent contractors who are hired.