Hiring an Independent Contractor
A great way to build capacity as a small business owner is to outsource some of the functions of your business, usually accomplished by hiring an independent contractor, such as, virtual Executive/Administrative Assistants and Chief Financial Officers for hire.
Downsizing elsewhere clears the way for the small business owner to avail themselves of experienced, capable and knowledgeable people. Most of these service providers own their business, and can be retained by contract and for a fee.
However, it is vitally important to know and understand the difference between an employee to whom you are delegating a project and an independent business owner/contractor to whom you are outsourcing work based on their particular business focus, specialty or expertise.
These are some tips for knowing what to do when hiring and independent contractor:
- Know the difference: Before outsourcing, check with your State’s Department of Labor website for a clear understanding of regulations distinguishing an employee from an independent contractor. In some states, these regulations have recently become more stringent.
- Seek professional advice: Check with an attorney to make certain that your company’s per project contracts or those provided by the independent contractor have the necessary legal language.
- Protect your information: After checking with an attorney, have ready for signature a mutual Confidentiality/Non-Disclosure, Non-compete agreement; safeguarding your proprietary information and that of the independent contractor.
- Abide by tax laws: Make absolutely certain that you have an IRS W-9 Form on hand for each independent. At the end of the year, send form 1099-MISC to all independent contractors to whom you have paid over $600. For more information check with your accountant, tax preparer or go to IRS.gov
- Check credentials: It is always a good idea to meet with the independent contractor and check their professional references. You are not hiring an employee, therefore, a resume is not the appropriate document to request. However, look at their website, collateral material, and ask questions!
INFORMATION, CONTEMPLATIONS AND MUSINGS OF A VIRTUAL ASSISTANT
Ivonne Vazquez is Principal of VIVA-Virtually Indispensable Virtual Assistants located in Maine, USA www.vivavirtualassistants.com
Ivonne,
Excellent post especially for small companies! I find the smaller the company the less they understand about this issue and the consequences that result. Although it is not always recognized by the IRS as proof of independant contractor it is always good to have a contract in place. We were audited by a State DOL and had to show contracts of independants as part of the audit.
Thank you, Tony. You are correct, many small companies do not realize the financial penalties imposed if a designation has been used inappropriately, what form to use or why an IRS W-9 form should be on file. That’s why visiting each state’s Dept. of Labor (DOL) website, and/or the IRS.gov site is beneficial.
The more paperwork you have the better, as you yourself experienced with your DOL audit. While it is up to the hiring entity to provide a W-9 for each Independent, I make it a point within my own business to provide a completed form with each signed contract. It behooves me to look out for my clients’ best interest, and this is one less thing they need to worry about.
Thanks again for your comment!