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Think you’re ready to hire an independent contractor for a business project or ongoing work?
There are 3 important steps you need to follow to protect yourself and your business when hiring an independent contractor. Hiring an independent contractor is different than hiring an employee. Here are some of the primary differences.
Contractor pays their taxes
Contractor sets their prices
Contractor invoices for work
You withhold taxes
You worry about labor laws, benefits, etc.
You deal with payroll and a work schedule
Here are 3 important steps to take when hiring an independent contractor.
1. Find a reliable independent contractor.
We’ve all heard the horror stories of people hiring someone who takes their money, and they never hear from them again. Talk to colleagues, and reach out to your professional networks to find a reliable independent contractor. Do your research to avoid hiring an unreliable contractor or someone who doesn’t have the skills you need.
Look into these things to help determine if they are a legitimate business.
- Do they have a website?
- Do they have online reviews?
- Do they interact with other businesses/have relationships?
- Are they active on social media?
Those are all good things to find out. We can learn a lot about a business by searching them on the internet. But, are we convinced of their legitimacy?
People can put anything they want on the internet. Make sure everything about the business checks out. If you have hesitations about their credentials, or information doesn’t add up, there may be some issues with the business.
You can find out if they have an EIN or Tax-ID number. References will help you determine how they run the business and if they are skilled in what they claim to do.
Some people claim to have certain skills, but they may not be to the standard you need. Someone who helps their friends on the side may not qualify to run a job or project.
Experience and expertise can vary. Ask the right questions to determine if the contractor meets specific qualifications you are looking for. You know your field of business. Make sure you’re both on the same page.
2. Have a contract or agreement in place.This is important to protect both parties. Everything should be in writing and signed to avoid any misunderstanding.
An agreement should include:
- Description of work or services
- How and when you will pay/ invoice terms
- Cost of services hourly/monthly
- Term of agreement
- Reasons either party can terminate the agreement
- Confidentiality for both parties
- Explanation of reimbursement of expenses, etc.
Organizations may require an independent contractor to sign their NDA (Non-disclosure agreement).
3. Complete IRS Requirements for W-9/1099
* This is basic IRS information. We are not tax professionals. Seek out your tax professional for details on completing these forms.
You will not withhold taxes for an independent contractor. They are responsible for paying their taxes. If you are paying a contractor, you need to prove you paid the contractor when you file your business taxes.
The IRS wants proof of who you paid (this prevents falsified documents). The IRS provides two forms for an independent contractor.
W-9 – This form will have the independent contractor’s contact information and Tax-ID.
1099-MISC – You will need to provide an independent contractor with a 1099 (instead of a W-2 for an employee). An independent contractor will use a 1099 to file their taxes. It also serves as a way for them to prove income like a W-2.
These forms are subject to your working relationship and the amount of work being done. Speak to your tax professional or visit IRS.gov to learn more about the requirements.
These 3 steps for hiring an independent contractor will set you up for professional, successful working relationships.
Are you looking to hire an independent contractor for extra work or a project? Here are the benefits of hiring an independent contractor versus an employee.
Call Heltzel Virtual at (352) 477-1877 to book your free consult.