Continuing on last week’s theme about potential legal pitfalls when hiring employees, it is wise to be aware of your business’ responsibilities when it comes to contract employees.
For many emerging businesses, it makes a lot of sense to hire contractors who will work on short-term projects or who will step in only when needed. The benefit to working with one or more contractors is the ability to save money on long-term salaries and benefits, especially when you don’t have enough work to justify hiring a full-time staffer. In addition, you must withhold Social Security, unemployment and other taxes for anyone who is considered an employee of your company.
Be aware, though, that the IRS stipulates a set of criteria for classifying independent workers and contractors vs. employees. If you have few employees and a lot of contractors, the IRS could look unfavorably upon your business, so it is best to proceed with a clear set of standards for entering into agreements with independent professionals.
First, educate yourself on the IRS criteria, which defines an independent contractor as someone whose work cannot be controlled by an employer. In addition, the agency looks at financial arrangements and benefits to determine whether or not a worker should be classified as an employee or as a contractor. Finally, if the answer is still not clear, a business may submit form SS-8 for review, which can take six months or more to process.
As you begin to work with independent contractors, a clear written agreement is key. A skilled business attorney can help you draft such agreements to ensure that you are protected.
If you have questions about employee and independent contractor classification, business agreements and more, contact EmergeCounsel today.