How To Hire An Independent Contractor

By Dan Handle, 21 Jan 19:39

Contractor ... One approach to increasing your staff for a specific project is by hiring independent contractors.

An independent contractor is a professional that works on a temporary rather than permanent basis.

Typically hired for a specific task or a predetermined amount of time, independent contractors are essentially in business for themselves. While they do work for you, they are not employees. They track and pay their own taxes, and typically cover their own health benefits as well.

Why and When to Hire Contractors:

Independent contractors allow you to have employees work in or out of your office without the need to pay payroll taxes or be subject to most state and federal employment laws. However, keep in mind that independent contractors could cause problems with the IRS and the Fair Labor Standards Act (FLSA).

Independent contractors are best used for short-term projects that require a professional. You might need a PowerPoint whiz for a few days to prepare a presentation, or a website designer for several months. The rule of thumb is, if the project is too complicated for a general office temp to handle, and needs specific expertise, then bring in the contractor. Here are a few tips on how to bring on an independent contractor, and what to avoid.

Here are a few tips on how to bring on an independent contractor, and what to avoid:

Tips
Know Who Qualifies as a Contractor. Because there are different tax requirements for contractors, it is important that you know what constitutes a contractor legally.

IRS. For tax purposes, the IRS differentiates between contractors and employees by the amount of power the employer has over the worker in terms of assigning duties, schedules and supervision. If the employer dictates not only what the worker is doing, but also when, where and how, this is an employee. If the worker is assigned other projects besides the specific task that they were originally hired for, then this is also a worker.
FLSA. The FLSA has a somewhat different interpretation of an independent contractor, but as with the IRS, these terms must also be met.

According to the SOHO Guidebook, an informational manual on starting a small business, the FLSA has six criteria for classifying whether a worker is an employee or an independent contractor:

1. the degree of the alleged employer's right to control the manner in which the work is performed

2. the alleged employee's opportunity for profit or loss depending upon managerial skill

3. the alleged employee's investment in equipment or materials required for the work

4. whether the service rendered requires special skills

5. the degree of permanence of the working relationship

6. whether the service rendered by the worker is an integral part of the alleged employer's business

IRS Form SS-8. This form determines individual status for purposes of income and employment taxes. This form can give you a good idea as to whether or not a worker qualifies as an employee or independent contractor.

Advertising for a Contractor. When advertising for a contractor, make sure the ad clearly states that the job is short-term, and includes the specific expertise required.

Get A Signed Contract. Not only does a contract help to establish the worker's status (though this alone is not enough), it also helps to eliminate any disputes that may arise later regarding compensation, description of services, and/or due dates. Use a formal legal contract and include the date of hire, the term of the contract, and the rate to be paid.

If you decide to extend the contract, be sure to talk to the contractor first, and re-draw the contract.

Using Employment Agencies. Some independent contractors are represented by employement agencies. In a sense, they are employees of the agency, which may be paying them as contractors. If this is the case, know that fees will apply and the contractor's actual rate may be lower than what the agency is charging. If you decide to extend the contract, you must notify the agency as well. And most importantly, if you think you might want to hire the contractor as a permanent employee, be aware of any agency rules. Some agencies do not allow their employees to take permanent employment with a client until a certain time period has passed.

Independent contractors are highly recommended for short-term projects requiring special expertise. Just make sure you know the laws, get a written contract, and keep the lines of communication open.

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