So, you want to get services performed for your business by hiring independent contractors?
Here are 3 things you should know before doing so.
1. Put It In Writing
Use a professionally prepared written independent contractor agreement with each services provider. A good business contracts attorney can prepare an agreement you can reuse if you need the same services from different contractors over time.
Related Article: How To Use Independent Contractor Agreements
2. Independent Contractors Are Not Employees
There are additional responsibilities you have if your workers are employees instead of independent contractors. This includes your payment of taxes and contributions to Social Security, Medicare, workers compensation, and unemployment comp funds.
The IRS and your state’s department of revenue will look at various factors (e.g. the degree to which you control how, when, and where the work is performed) to determine whether you have independent contractors or employees working for you.
Related IRS Resource: Independent Contractor (Self-Employed) or Employee?
Why is this important?
Because if you treat employees as contractors, you may be liable for back taxes and penalties.
In short, use employment agreements if the workers are actually employees. Only use independent contractor agreements if in fact the workers are contractors.
Related Article: Boost Business With Independent Contractor Agreements
If you don’t know how to classify your potential workers, discuss it with your business lawyer. He can analyze your unique facts and advise you how to proceed.
3. Hiring Independent Contractors Is A Phrase To Avoid
Try to avoid using the words “hire,” “hiring,” and the like when referring to independent contractors even though it’s common in business to use those terms.
Because “hiring” from a legal standpoint generally refers to employment rather than contracting.
In addition, it also puts you in the improper mindset of treating your contractors as if they were employees.
And it may give your workers the wrong idea too.
For example, a contractor who mistakenly believes he is an employee may file an unemployment compensation claim with the state once his project for your company ends. This puts you in the unnecessary position of proving to government bureaucrats that the worker was actually a contractor instead of an employee.
Instead of “hiring,” substitute terms like “contract with” and “retain the services of” when referring to your business relationship with independent contractors.