Benefits of hiring independent contractors include:. As the hiring employer, there are still some things you must do to hire and start paying that independent contractor. Before you hire and start paying an independent contractor, make sure that this worker is truly an independent contractor and not an employee. Misclassifying an employee as an IC can result in state and federal fines and penalties. Several federal and state agencies have tests and requirements for independent contractor status, including the IRS, the Department of Labor, and state employment agencies.
Here's a quick review of the requirements for these entities:. For various reasons mostly to do with payroll taxes , the IRS is concerned that workers are appropriately classified as either independent contractors or employees. The IRS considers that worker to be an employee unless you can prove otherwise.
The IRS determines the status of workers on a case-by-case basis, and it looks at behavioral, financial, and control factors to determine status.
If you are unclear about the status of people who work for your business, you can request a determination from the IRS. The DOL says that if an "employment relationship" is present between the worker and the employer, the worker is covered under the provisions of the FLSA for several purposes, including:. There's no single rule or test that can be used to determine whether an employment relationship exists.
It's the total activity or situation which controls. The existence of an employment contract doesn't, the place where the work is performed, or whether the person must be licensed by a state or locality. States classify workers to determine their eligibility for state programs, especially unemployment insurance and worker's compensation. For example, California and some other states use a three-factor ABC test in which all three factors must be met for the person to be considered an independent contractor.
The IRS, Department of Labor, and individual states have different requirements and purposes for independent contractor status. An individual may be classified as an independent contractor for one purpose under one agency and as an employee for another purpose. An independent contracto r is someone who does work for another person or company. Independent contractors are business owners who are in a trade, business, or profession and who offer their services to the general public.
Someone is an independent contractor if the person paying them can only control or direct the result of the work. An example of an independent contractor is a cleaning service. The service comes into your office to do work, but the cleaning service workers are not employees of your company. You can tell them which offices to clean and when you want them to clean, but you can't tell them what cleaning supplies to use or how to run the vacuum cleaner. The most important document you must get from an independent contractor is Form W The W-9 form serves the same purpose as a W-4 form for newly-hired employees.
Anyone you hire as an independent contractor must complete and sign this form before they begin work for your business. In addition to the W-9 form you'll need specific new hire paperwork for each independent contractor you hire:.
To support an argument that a service provider is properly classified as an independent contractor, that individual needs to be treated as an independent business professional, not an employee. Vendors and other businesses with which the company deals are paid through accounts payable. Of course, employees are paid through payroll. Whether contractors can be paid by the hour depends on the situation.
These are part of the "are they Independent" and running their own Business, test. This is part of the Supervision test. As for Worker Comp, in some States, you still are liable for WC when the independent contractor is on your job site, anyway. WC is not a test. It is a fact of doing business. You might have had it wrong all along. It's like this: If the Janitorial Company has the contract with the bank, and they subcontract to you, you need to Contract between the janitorial service and you.
Community Champion. Hourly as a subcontractor is fine. Providing your own supplies is part of the contract. As long as this is as a contractor and you submitted a correct W9 and are not subject to backup withholding then there should not be any taxes deducted from your pay for services. Sign in for the best experience.
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