When you’re ready to expand your business, hiring your team can be daunting. Add to that the complication of whether to bring on employees or independent contractors, and many of my own clients refrain from moving forward at all. So when–and how–do you hire independent contractors?
The key to understanding whether you’re ready to hire an independent contractor is to understand the differences between them and employees. In many states, and California in particular, it is very difficult to classify a worker as an independent contractor. These states skew heavily in favor of protecting employees, so it’s important to understand whether you’re actually hiring an employee or independent contractor and get it right from the outset.
Key Factors in Establishing an Independent Contractor Relationship
The number one factor in determining whether someone is an independent contractor or employee is control. An independent contractor should have near complete control over how, when, and where their work is done. And if you have the right to dictate that, even if you don’t enforce it, then they’re not an independent contractor. Other factors to consider include whether they
Pros and Cons of Hiring Independent Contractors
There are advantages and disadvantages to hiring an independent contractor. Here are a few considerations to determine if it’s right for your business.
PROS OF HIRING AN INDEPENDENT CONTRACTOR
- Cost Savings: Independent contractors typically cost less to the business because taxes, withholdings, and benefits are passed on to the contractor.
- Flexibility: With an independent contractor, a business can hire for exactly the project or hours they need, and not worry about keeping someone on payroll as the work ebbs and flows.
- Fewer Legal Risks: For the most part, the legal risks are offloaded onto the contractor, minimizing a business’s exposure.
- Less Turnover: The cost of employee turnover is incredibly expensive, but with independent contractors, it’s easier to find a new one and engage them quickly.
CONS OF HIRING AN INDEPENDENT CONTRACTOR
- Less Control: This is the biggest risk a business takes on with independent contractors. Because they are, in their very nature, in control, the business isn’t, and that can lead to missed deadlines, mistakes, and other repercussions for the business that it can’t control.
- Consistency: When working with different contractors on different projects, you risk losing consistency in the quality of output and the brand image.
- Audit Risk: The government is always keeping an extra eye on independent contractor relationships, so you run a slightly higher risk of being audited.
- Schedule Conflicts: Since independent contractors are more likely to be working for others at the same time, you may run into issues getting your projects completed when you want.
Ready to Hire an Independent Contractor?
If you’ve considered the pros and cons and you believe hiring an independent contractor is right for you, here’s what you’ll need:
- W-9: Request a W-9 from the contractor, which should include their legal name and social security number or EIN, and will have everything you need to fill out a Form 1099 for them at the close of each calendar year.
- Contract: This can’t be stressed enough. You need an independent contractor agreement. This will protect both you and the contractor and should lay out all the key pieces of the agreement, including the scope of work, payment amount and terms, confidentiality, and any intellectual property protection, if applicable.
- Insurance: Depending on the type of work you’re hiring the contractor for, you may request an insurance certificate from the contractor.
- Invoices: The agreement should lay out how the independent contractor should invoice you and when, so these invoices will be used to confirm amounts due and also support the 1099 at tax time.
Ready to hire your independent contractor? Schedule a free consultation so we can chat about your specific needs and put together an agreement that is right for you and your business.