These days many business owners are finding that hiring an independent contractor is a much better option for them rather than hiring an employee. The advantages of hiring an independent contractor include:
- Ability to hire based on work or project that needs completion
- Avoiding employee tax withholding’s
- No long term commitments
- Allows employer to hire based on cost
In order to take advantage of these advantages, certain criteria must be met to ensure the person you hire is an independent contractor and not an employee. The IRS has strict guidelines it follows to determine if someone is considered a contractor, including how much control the hiring institution has over that person’s work.
If you are considering the idea of hiring an independent contractor for a project or job, here are a few things you should look for:
1. Do They Need Training?
If you find that the person you hire to do a job needs extensive training on how to do the job or on equipment or software needed to complete the job, the IRS will consider them an employee rather than a contractor. A contractor is one that comes ready with the knowledge and experience to complete the task at hand. You generally hire them because of their specific expertise and shouldn’t need training.
2. Do They Have Their Own Equipment?
Generally speaking, an independent contractor should already have any equipment they need to complete the work you hire them for. The hiring institution shouldn’t need to supply equipment or purchase any additional supplies for the contractor. There may be supplies that need to be purchased for the specific project, but not for the contractor him or herself.
3. Paid by the Hour or by the Job?
One major distinction between a contractor and an employee is how you pay them. You geneerally pay employees by the hour or on a salary basis. Independent contractors, on the other hand, receive payment by the job or project and decide on their own how many hours they spend to complete the job and when they work.
4. Do They Have Their Own Workspace?
Once the hiring institution has negotiated the terms of the contract work, the independent contractor should use his or her own workspace or office to complete the job. You shouldn’t have to provide a workspace. There are occasions when the contractor will work onsite, such at construction sites. If the contractor you are hiring is requiring a space in which to work, they could be in consideration as an employee by the IRS.
For more information on hiring independent contractors, contact Hacker Accounting at 602-375-5251.