How To Hire An Independent Contractor

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You’ve reached a point with your business where you might be set to expand, or you might need help through a busy season. Maybe you’re looking for an expert in some area to step in and train others or give you professional advice. What do you do? You hire an independent contractor.

Key Takeaways

• Independent contractors can play a vital role in a company’s success.

• Independent contractors are self-employed and usually have a specific area of expertise that they bring to the table.

• While regular employees and independent contractors can do the same exact job, they’ll have different contracts and different benefits. It’s important to classify them correctly.

What Is an Independent Contractor?

An independent contractor, often called a freelancer, is someone who has an area of expertise or something they specialize in. These people are self-employed and work for other companies in a limited capacity. The IRS defines an independent contractor as someone who provides services to other businesses and does not have an employer withhold income, social security, and Medicare taxes from their wages. They also don’t get the benefits that regular employees get.

An independent contractor can be hired by a business or by an individual to perform a job. Sometimes they’re employed on a long-term basis with no end date in sight and other times they do a one-off job and that’s it.

Just like there’s a lot of flexibility in the terms of an independent contractor’s service, there’s also variety in what they do. There are independent contractors that do landscaping, writing, management, cleaning, accounting, and more.

Choosing Between a Contractor and an Employee?

This quick quiz can give you a better idea of your hiring needs.

Difference Between an Employee and an Independent Contractor

There is a big difference between an employee and an independent contractor as far as the IRS is concerned, and their work contracts will be very different. That said, two people might sit right next to each other in an office, doing exactly the same job; one an employee, the other an independent contractor.

Let’s imagine that two graphic designers are hired by company X. Mary is a full-time employee and Mark is an independent contractor. Mary is on the company’s payroll and has taxes taken out of her paycheck. She also gets paid time off and other benefits. Mark is paid by the company, but none of his taxes are taken out, and he’s expected to pay them to the IRS on his own. He also does not get paid vacations.

Mary has a bit of job security and expects to be employed day-after-day, as long as she is doing her job well, and the company is in business. Mark knows that his contract is flexible and could end at any time. In fact, he might be hired to assist with just one big project and then he’s done – until they need him again.

Classifying an independent contractor and an employee correctly is critical when it comes to taxes. In most cases it’s clear which category the individual falls into, but there are times when there can be confusion. If someone is classified incorrectly, there can be tax repercussions.

Why Hire an Independent Contractor?

Hiring an independent contractor can be a huge benefit in a variety of ways, and they bring some flexibility to your workforce. Many companies go through seasonal changes, and they’re best suited by loading up on freelancers during the busy season and then letting them go when there is a lull.

There are also companies that have big contracts or business ventures that come and go, and they need extra employees for a short time only.

Having independent contractors fill these roles is a smart solution because then they don’t have to worry about paying taxes while the employee is working, and they aren’t encumbered by paying unemployment or any severance when they’re no longer needed.

Another great reason to consider a freelancer is if they bring a specialized talent to your company that you don’t have on-staff and perhaps don’t need on a full-time basis. Many independent contractors work for the same company all the time, but they don’t always work full-time, and they know they are temporary hires.

Finally, some companies hire independent contractors when they’re going through a shift. Whether they’re looking to reorganize the company or potentially expand, having an independent contractor on hand is a way to test the waters and see what is needed for future employees.

Benefits of an Independent Contractor

Hiring an independent contractor is loaded with benefits and almost no downsides as long as you can find a reliable and competent freelancer. Some benefits when you hire an independent contractor:

• Only pay for the work they do

• Don’t have to pay benefits

• Employers don’t pay a portion of their taxes

• Flexibility to use them when needed

• Independent contractors are often flexible with the hours and dates they’ll work

• They’re experts in their field, already very skilled and efficient

• It’s faster because it’s a benefit to them to work quickly

• Self-sufficient and needs less or no training

• Freelancers pay the costs that are associated with doing the job (they provide their own equipment)

• Not entitled to join or form a union

The amount you use your freelancer is strictly up to you and to them. Usually, you’ll have an independent contractor contract that dictates the scope of work (SOW), but this can also be open-ended and adjusted whenever it needs to be.

How to Hire an Independent Contractor

If you’re an individual looking to add workers to your own business or you need extra help, you will need to determine if you need a federal employer identification number (EIN). You might want to change the way you work to get some added protections if you’re going to be hiring freelancers.

This is an entirely different topic, but one that needs consideration if you don’t have other employees and are looking to add them in any capacity.

• Identify your needs. Established businesses with an EIN can start writing a list of what they want from an independent contractor. This will form the basis of the contract you and that individual establish, but it will also help you find the right person.

  Knowing what tasks you want them to perform and how much you will need gives you an idea of what you really need and is a big part of writing the job ad.

• Check guidelines. Review IRS guidelines next just to make sure that you’re actually hiring an independent contractor and not a limited employee. It’s not too difficult to establish this, but it’s worth a review.

• Perform your job search. Finally, you’ll want to do your job search. Some companies use hiring agencies, others use job boards, and some do it by word of mouth. Either way, you want to make sure you thoroughly vet the person to make sure they can handle the job you want them to do. Having a great independent contractor you can rely on again and again is well worth the effort it takes to find them.

Independent Contractor Contract

The best approach is to have a written contract with your freelancer, but one that is open-ended and says that they can be let go at any time or continue on as needed. You’ll also want the contract to specify the scope of work, the pay, and that the contractor is responsible for providing their own work tools. These elements will help you fall within IRS guidelines.

Some companies have formal contracts with freelancers, while others simply draft up an email that both parties agree to. This can work as well as a formal contract in many situations, especially with small companies. The key is ensuring both sides agree to the terms.

Independent Contractor FAQ

1. Can anyone be an independent contractor?

   Yes, anyone can be an independent contractor and establish themselves as a business. If you have a skill or a talent, you might want to work on your own and not have one employer.

2. Is hiring an independent contractor more expensive than hiring a regular employee?

   Whether hiring an independent contractor is more expensive than hiring a regular employee or not depends on the situation. Many independent contractors charge more per hour or on a per-project basis than regular employees, but they are responsible for all of their own taxes and for the tools needed to do the job, and they don’t get paid any benefits. In the long run, it’s often less expensive to hire a freelancer. Add to that the fact that you don’t have to pay them if you don’t need them, and it is often a more financially beneficial move to hire freelancers.

3. Can I deem all of my employees are independent contractors and stop paying them benefits?

   No, you cannot deem all of your employees as independent contractors. The IRS has specific guidelines on what qualifies as an independent contractor and what is a regular employment situation. You do not want to try to “get away” with not paying taxes or benefits, because there can be far-reaching tax repercussions, and you could be sued by the people you’ve hired.

4. Is hiring an independent contractor a good idea?

   Yes, hiring an independent contractor is a good idea in many cases. Every situation is different, and you’ll have to review yours carefully to see what your needs are, but independent contractors are a great way to get top-skilled individuals on a part-time or short-term basis.

5. Is hiring an independent contractor difficult?

   No, hiring an independent contractor is not difficult, any more so than hiring a regular employee. In fact, there are job boards just for independent contractors that can make this task easier. There are also temporary agencies that are set up to connect freelancers with companies looking for help in a particular area for short-term work.

Author

Kristin Kizer

Kristin Kizer is an award-winning writer, television and documentary producer, and content specialist who has worked on a wide variety of written, broadcast, and electronic publications. A former writer/producer for The Discovery Channel, she is now a freelance writer and delighted to be sharing her talents and time with the wonderful Zippia audience.