If the independent contractor is organized as a business, you should do a check with the Better Business Bureau to make sure no complaints have been filed against this business. Don't forget the tried-and-true web search, including reviews of the business. Paying an independent contractor is pretty simple. You can pay by the hour or by the job. You also don't have to pay unemployment taxes on independent contractors. You must keep track of payments you make to independent contractors each year and report the total payments to the IRS.
This form includes information about your payments to the independent contractor, but it doesn't usually include tax withholding unless the person is subject to backup withholding explained below. You must send the NEC form:.
In most circumstances, you do not need to withhold income taxes from the payments you make to independent contractors.
But there are some exceptions:. If you receive a backup withholding notice from the IRS, you must withhold income taxes on payments to the independent contractor.
You don't have to do anything until you receive the backup withholding notice from the IRS. In every case, before you hire an independent contractor, create an agreement and get it signed by the contractor. The agreement should include details about the requirements of the contractor, pay rates, and sections about non-competition and confidentiality. If the contractor is creating work to be copyrighted, trademarked, or patented , the ownership of this property should be made clear, including a work-for-hire clause in the contract.
Finally, be sure to include a statement about independent contractor status; that is, that the person is not an employee. Cornell Legal Information Institute. Accessed May 10, Berkeley School of Law. Actively scan device characteristics for identification. Use precise geolocation data. The person performing the services may be:. In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
Facts that provide evidence of the degree of control and independence fall into three categories:. Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship and consider the extent of the right to direct and control the worker.
Finally, document each of the factors used in coming up with the determination. The form may be filed by either the business or the worker. Be aware that it can take at least six months to get a determination. Find Jobs.
Post a Job. How to Hire an Independent Contractor There may be a point in the growth of your company where you need an expanded workforce to get the job done, but you may not be able to take on the payroll responsibilities for hiring full-time employees. Post a Job Are you a Job Seeker? FAQs about how to hire an independent contractor Can an independent contractor work for one company? Do independent contractors set their own hours? What are some common mistakes made by employers who hire independent contractors?
It's quick and easy to post jobs on Indeed. Post your Independent Contractor job today. Its six factors overlap those of the IRS. It also considers whether or not the worker has a bona fide business that does not provide services integral to yours. So how do you prove that someone is indeed an independent contractor and not an employee?
The best documentation shows the person has a bona fide business separate from yours. Documentation can also show the worker fully controls his or her work, the work he or she provides is not an integral part of what your business provides and the worker is free to make a profit or loss and be hired by others check with the IRS for further information.
In addition, keep a vendor file for each independent contractor that includes the following:. A written contract. Outline the nature of the relationship since merely saying the person is an independent contractor doesn't make it so.
Indicate the project's expected results, fee and date s of completion. Note the contractor's business and tax I. Make sure the contract is signed by both parties and create a new contract for each new project. Proof of a real and separate business. Keep a copy of any letters on business stationery, business cards, brochures or advertisements. Print a copy of an appropriate page of the contractor's website, online advertisement of services or copies of emails detailing services offered.
Base all payments to the contractor on their submitted invoices. An independent contractor shouldn't submit expense reports to you. Mileage and any equipment or supply purchases should be part of their business expenses, not yours.
Keep all invoices, and make sure they match up with Form , which you'll need to provide the contractor at the end of the tax year. Form W Keep a properly completed W-9 on file for each independent contractor. An independent contractor should check that box and file their own self-employment taxes.
With today's stricter employment laws, it's important that businesses do their homework before simply classifying someone as an independent contractor. The following situations may raise red flags as far as an independent contractor's status:.
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