Hiring an independent contractor makes sense for many businesses and can be an effective way to have the necessary manpower without bringing on traditional employees. Before hiring an independent contractor, it’s important to understand the details of this work arrangement and what your responsibilities are as an employer.
What is an Independent Contractor?
According to the IRS website, “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the results of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.” Simply put, an independent contractor doesn’t operate under traditional terms like an employee who works regularly for an employer, but instead they work whenever required.
Benefits of this Work Arrangement
Although you may end up paying a contractor more per hour than you would a regular employee, you’ll often save money in the long run because you’ll reduce your expenses because you’re not responsible for employer-provided benefits, equipment, training, etc. You’re also not required to pay for workers’ compensation, state unemployment insurance or for your share of Social Security and Medicare taxes, which is 7.65 percent of an employee’s earnings.
Hiring an independent contractor also offers more flexibility than hiring a traditional employee because they perform duties only as necessary, giving you access to talent when urgency strikes. Consequently, this type of arrangement is ideal if your business experiences fluctuating workloads.
Protecting Your Business
When it comes to classifying workers, it’s critical that you get it right. Misclassifying someone who is actually an employee as an independent contractor can get you in hot water legally. Additionally, you may have to pay back taxes and potentially incur penalties for misclassification. If you’re not entirely sure about how to classify a worker, you can get more information from the Independent Contractor vs. Employee section of the IRS website.
Liabilities due to injury aren’t a concern if a contractor works offsite and telecommutes (e.g. freelance writers, software developers and web designers.) However, if they work onsite, it can be a more slippery slope because they won’t be covered under your workers’ compensation plan.
If an independent contractor is injured for any reason due to your negligence, you can end up facing a lawsuit. It’s therefore, essential to do everything possible to maintain a safe working environment.
You may also be held liable if your employees harass or discriminate against an independent contractor. For that reason, it’s important to develop some firm anti-discrimination policies and hold your employees accountable for their actions. You may also want to take it one step further and establish an affirmative action plan.
There’s no doubt that hiring an independent contractor is the right move for many companies and can be a positive experience for both parties. Just make sure that you’re correctly classifying workers and be proactive about reducing your liabilities.