Guide to Using Independent Contractors

A great deal hangs in the balance. And unfortunately, it's not merely up to you to choose. The IRS and equivalent state agencies are strict on worker classification issues. They look askance at this type of relationship because independent contractors are responsible for paying their own taxes and it's tougher for the IRS to make sure they're doing so.

Knowing these basics will help:

1. Working with independent contractors (ICs) can save your business a bundle in payroll taxes, insurance, benefit costs, training and other areas. But misclassifying an employee as a contractor can lead to big penalties.
2. Independent contractors work for themselves. They operate their own business and have you as a client. You are not their employer and don't set their hours or control how they perform their work.
3. Government agencies tend to see it this way: A worker is an employee of your business unless you can prove otherwise.
4. The key issue often comes down to this: How much control does your business wield over the worker?

Tips & Tactics
Helpful advice for making the most of this Guide

• Contractors control when and where they work. While they might receive job specifications from a client, they are not given specific instruction on how to accomplish a task.
• Avoid setting a pattern of daily or weekly work hours dictated by your business.
• Contractors do not usually have a permanent or continuing relationship with your business and have time to pursue other clients. Compensate contractors on a per-job basis, rather than weekly or monthly.
• Contractors are paid to complete a set task and may bring in others to complete it, at their discretion and on their payroll.
• Contractors should use their own tools and technology and be responsible for their incremental expenses. They have an investment in their own "business" and should be able to perform their duties without your facilities.
• Contractors can't be fired as long as they produce results that meet their contract specifications.
• Do not include them under any insurance or benefits coverage you have for employees.

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