Should Your Online Business Use Individual Independent Contractors?

When you need work done for your online business but don’t want to hire an employee, what do you do?

It depends upon the type of work you want done. For example, if you need an administrative assistant to come to an office 9-5 weekdays to do work that you manage, chances are you’ll need an employee instead of an independent contractor.

On the other hand, if it’s a one-off project, such as designing your website’s logo, that’s something you can farm out to an independent contractor instead of an employee. Freelancers that can handle this type of project can be easily found at sites like Upwork.com, 99designs.com, or even Fiverr.com.

What you don’t want to do is disguise an employee as an independent contractor in order to evade payroll taxes, paying employee benefits, etc. Both the U.S. Internal Revenue Service (IRS) and your state’s government penalize companies who try to do this. If you get caught, it can financially ruin your business.

Although there is no bright-line test, when the IRS looks at a worker to determine whether the individual has been classified properly as either an employee or independent contractor, the agency focuses on three things:

  1. Behavioral Control – the degree to which you control the worker’s behavior (e.g., setting the worker’s hours)
  2. Financial Control – how much control do you have financially over the worker (e.g., expense reimbursement, furnishing equipment to do the work, etc.)
  3. Relationship  – how is the relationship between your business and the worker in practice and in perception (e.g., contract terms, does the worker perceive himself to be an employee, etc.).

If it’s a gray area as to whether the work should be done by an employee or an independent contractor, one of the ways to reduce your risk if going the contracting route is to avoid engaging the services of an individual independent contractor.

Instead, you’ll contract with a limited liability company or corporation that has one or more employees who will do the work for you. The important thing to remember is that these workers are not your employees and you shouldn’t treat them as such.

If you’re looking to expand your business, an experienced business lawyer can help you determine what type of workers you really need plus prepare independent contractor agreements and employment agreements designed to protect your interests.

Author Mike Young, Esq.

Mike Young has been practicing business and technology law since 1994. He's been an entrepreneur since 1988. To get legal help from Attorney Young, click here now or call 214-546-4247 to schedule a phone consultation.

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