Hiring Independent Contractors

Start-up and small businesses often begin by hiring independent contractors instead of full fledged employees.  Independent contractors can be an amazing solution to a small business working with a budget and a specific project because an employer is not responsible to pay for or withhold the independent contractor’s payroll taxes or provide benefits.  If your business is planning on hiring an independent contractor, you should be aware that there is more involved than just calling the person an independent contractor.  Businesses can get in trouble with the IRS if they call someone an independent contractor who is in fact an employee.

Although there is no exact definition of what constitutes an independent contractor, there are certain factors that the courts consider when deciding if an individual is an independent contractor or an employee.  Here are some key questions to ask to determine if the person working for you is an independent contractor:

1) Does the individual work exclusively for the company or is he permitted to work for others at the same time?  Allowing the individual to work for others suggests an independent contractor status.

2) Does the business have a written agreement with the individual stating that the individual is an independent contractor and thus the individual  must pay all taxes?  A written agreement that clearly states the terms of the arrangement is always useful.

3) Does the individual control his own work schedule and the number of hours he works for your company?  If you require the individual to work a specific number of hours a week, as opposed to hiring him to complete a project, this may suggest to the court that he is an employee of your business.

4) Does the individual operate from his own workplace and use his own supplies or does he come to an office leased by your business?  If the individual works in his own space and uses his own supplies, as opposed to your company’s space and supplies, the courts are more likely to see him as an independent contractor.

There is not a single, easy answer to whether an employee is an independent contractor or not.  Instead, you should consider your situation in its entirety.

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