Many modern-day businesses have worked with an independent contractor at least once. If not, you are likely to work with a freelancer in the near future as they are expected to make up more than 35% of the workforce by 2020.
Benefits of Working with Independent Contractors
As a company, working with these individuals or groups is great for a number of reasons, which include:
- Reduction in oversight: In ideal circumstances, the contractor should be an expert in the project that you are getting them to work on. This means you are able to trust them to utilize their expertise to produce the desired end result, rather than doing everything yourself.
- Temporary working relationships: Sometimes you may need some help to redesign your website, but you do not need a full-time web designer. This is the perfect job for an independent contractor, and you only need to pay for the specific tasks that you assign out.
- Lower costs: Contractors are also people who run their own business, thus they are responsible for their own admin functions such as buying insurance or paying their taxes.
However, there are some requirements you need to adhere to when working with a contractor. Below are a set of must-dos to prevent finding yourself in some sort of legal trouble.
Issue a Form 1099-MISC at the End of the Year
Generally, you are required to issue this form when you’ve paid a contractor more than six hundred dollars throughout the year. This form must be sent out to all contractors on the last day of January. After that, you will need to submit a copy to the IRS too, by the end of February.
Keep Sufficient Records
Just like how you are supposed to keep sufficient records of your business expenses and employee payrolls, you will also need to have enough records of anything that is related to hiring contractors. The records should include the contract itself, proof of payment as well as invoices.
Ensure that There is a Signed Agreement
An agreement that is mutually-signed will be able to lay out the important aspects of the project. The items of the agreement can include the final owner of the product, intellectual property rights as well as the compensation structure. Although such agreements are not always necessary, it will still protect both parties. As the hiring company, you do want any contractors to return and claim that you still owe them money, and thus they are the rightful owners of the product that you might have already paid for.
Get a W8-BEN or W-9
This form is needed to facilitate the request for a taxpayer identification number which lets you know if a contractor is allowed to work in the country through legal means, and if they are a citizen or resident of the United States. This is imperative as you do not want to end up illegally hiring labor. You will need to collect a Form W8-BEN from them if they are an international resident.
If you do not want to handle everything by yourself, remember that TRAXPayroll can get you through the mind-numbing paperwork and help pay contractors during your normal payroll cycle.