By Catherine Lang-Cline
Sometimes people get very nervous when it comes to hiring independent contractors because they believe it is complicated. It really isn’t, it’s just has its own rules and just like learning the rules to Texas Hold’Em or Cards Against Humanity, once you know how it works, you can play and win.
Rule #1 - Get the definition of the relationship in writing. The employer gets to decide the working relationship and needs to get it in writing so it is understood by everyone. Having an unclear relationship means the worker can say at any time that they have been treated like an employee and then you might need to pay them back benefits if you are audited. Not to mention, the government will want back taxes and penalties. A typical contract will include the scope of work, payment schedule, who owns the finished work, and a project end date.
Rule # 2 - Know your paperwork. You must have a W-9 on file for each independent contractor so that you don't have to withhold income taxes from that individual. You will then have the information to create a 1099-MISC form for that person for the tax year (similar to a W-2 form for employees). All of these are a must. It will also help if you have any information about them that indicated they are working independently from you. Company business card, company address, other clients, etc.
Rule #3 - Businesses of all sizes need to follow the same rules. Don’t think because your business is small you won’t be found out. Audits happen all of the time. Occasionally contractors and employees “spill the beans” and that info will work against you.
Rule #4 - It’s all about the relationship. Let’s say that you have perfectly completed Rules #1-3 yet the auditor says this is an employee. How does that happen? Did you give the independent contractor working hours? Did you manage the job by telling the worker how to do the job? Basically, was this person treated as an employee? Yeah. It’s tough. But compare it to hiring a plumber or an electrician. Do you get to tell them when to be there and how to do their job? No. So it needs to be just like that. If they are working from home, you cannot control their time, but if they are coming internally just let them know the hours the business is open and when you can expect them.
Rule #5 - Temporary workers, probationary, or seasonal workers are NOT independent contractors. This is one of the main reasons that staffing companies exist because they take workers in these categories on as their employees to save you the hassle. Not to mention, staffing companies offer you a little more legal space to move around in because these people are typically hired and treated as employees but with the staffing company covering their taxes, benefits, etc. Another option is that YOU take them on as hourly employees and follow the paperwork that goes along with that.
Now that you know the rules, it’s time to play and win! THE most important thing to remember is to get the paperwork in order, define the relationship, then treat them not necessarily as family but more like the Lyft driver who you have a great time with, but they are really just there to get you where you need to go.