Hiring independent contractors is a great way to fill in gaps in your business, especially when you need a short-term solution to fill in those gaps. A 1099 independent contractor, unlike a full-time W-2 employee, is typically contracted for specific tasks at specific times. In addition, they may work with other clients while working with you. Typically, you will have less control over how and when the contractor accomplishes a task–but can control the result.
Is hiring an independent contractor right for your business? Make sure you’re considering these key tips as you put together your contracts.
1. Make sure you have a contract in place.
Your contract needs to have language in place to protect your company and the contractor. Additionally, the agreement should establish your expectations for working together. A clear contract can help set out all the terms of the contractor’s relationship with your company. Not only that, a clear contract helps each of you know what comes next and who keeps what at the end of the project. And you can refer back to it to answer any questions you may have.
In addition, make sure your contract protects your intellectual property. When you have an independent contractor working for you, that contractor may have access to critical intellectual property and confidential information that you don’t want to be disclosed or leaked to third parties or the public. Include a confidentiality clause in your contract that indicates that these remain the property of your company. In some cases, where damages from the disclosure of confidential information would be hard to ascertain, you may want a Liquidated Damages clause with explicit damages for violations of confidentiality.
2. Set out clear expectations.
As part of the contract, you should include exactly what type of work you want the independent contractor to complete. That means a clear list of what deliverables you expect to receive. Often, with an independent contractor, you may have less control over the timing of exactly when the work gets done or how long the contractor spends on the task. However, you can clearly define what a “finished task” looks like.
3. Make sure you fully understand the classification of independent contractors versus employees.
When you hire independent contractors, you can have the manpower you need, when you need it–and without having to worry about payroll taxes or many common state or federal employment laws. However, not every worker can be classified as an independent contractor. An independent contractor determines the performance of work assignments. They may not have the same responsibilities as an employee. Each state has different rules and regulations when it comes to independent contractor classifications. So you should consult an experienced employment lawyer if you have any questions about your employees’ status.
4. Make sure you know what is expected of you.
Independent contractors and freelancers may operate very differently from regular employees. Expectations for you, as a business owner or manager, may look different, too. Discuss expectations with the contractor ahead of time. What do you need to provide in order for the contractor to do his job effectively? What feedback do you need to provide? The better you understand the contractor’s expectations, the more effective you can make the contractual relationship for both of you.
You may not be responsible for paying employment taxes for independent contractors. However, you will still need to fill out form 1099-MISC for contractors used by your organization. Keep careful records of payments, the contractor’s status, and other vital information, including the contractor’s tax ID number. Contractors must still report their income to the IRS and pay taxes on that amount. Your records will help offer the information they need.
Managing and hiring independent contractors is, in some cases, more complex than having standard employees alone. While it can offer several advantages to your business, it’s important to ensure that you do it correctly. Contact us today to learn more about your legal responsibilities when it comes to hiring an independent contractor.