Hiring independent contractors has become necessary for many companies and prominent within entire industries. But, many contractors are actually treated like employees, for which there is a large difference under the law. Here, the employment law attorneys at SLH provide considerations for hiring an independent contractor.
There are distinct differences between employees and independent contractors. Classifying one as the other can result in serious consequences from the IRS. This leads many businesses who utilize independent contractors and employees in the regular course of their business to the same question: How do we maintain and structure the work of an independent contractor so that it does not infringe on his or her status as just that?
Below, the employment law attorneys at SLH have provided a few practices to consider:
Hire an Incorporated Independent Contractor
A contractor that has incorporated their own business is technically an employee of their business, and therefore not an employee of your company. Because the corporation stands between you and the employment of the contractor, there is no legal relationship between the two. This means that the tax and benefit burden rests on the corporation, not your company.
Contract Through Employee Leasing Companies
Hiring a contractor from an employee leasing company will be more expensive, but offers benefits. A leasing company will provide screened workers, who are also the responsibility of the leasing company, and not the legal responsibility of your company.
Develop Binding Written Contracts
It is essential to have a written and signed contract detailing your business relationship with, and responsibilities of, any contractor you hire. This contract should distinctly specify a contractor’s status and purpose, and include signed addendums for each new project that the contractor works on.
Pay by Task Completed
Contractors should not be paid an hourly rate, but receive compensation based on the work that they complete. This also means contractors within your organization should not be working set hours: having a contractor punch in and out, or work a nine-to-five shift could blur their classification as separate from an employee.
Keep the Relationship Independent
Contractors should not have their own office within your company space, unless the nature of their work requires it. Contractors should also not have a title within the company, and should not be present for company meetings or functions. An independent contractor is independent for a reason–they are a separate entity from your company.
Interested in hiring an independent contractor, but want to ensure the proper relationship is maintained so that you avoid missteps and possible penalties by the IRS? The process does not have to be complicated: The experienced employment and business law attorneys at Snee, Lutche, Helmlinger & Spielberger can guide you through the legalities related to hiring practices and help you to remain compliant with federal regulations. For more information, contact SLH today.