Technically, independent contractors are not employees. They may perform work for you or sell you a product, but they're not legally in your employ. This decreases your obligations to them in several respects, but it also lessens your control over them. Not all businesses who use independent contractors ask them to sign agreements defining the relationship. Doing so, however, can avoid problems down the road both for you and your contractor.
Not Everyone Who Works for You Is an Employee
An employee is someone whose time and work you control. An employee reports in at a certain time at a certain place and works a determined number of hours. During their working hours, you tell employees what you want them to do for you. An independent contractor agrees to do a certain job for you, or a series of jobs. You can tell an independent contractor when you want the work completed, but you can't dictate when, where, or how this person does the work.
There's a Difference in Taxes
Employers must withhold income tax, Social Security, and Medicare from the paychecks of employees. Independent contractors are self-employed. As such, they pay these taxes on their own. Tax consequences can make independent contractor status attractive to some business owners, because these workers typically don't cost as much. It's especially useful for project work, where you can pay per job rather than keeping a full-time worker on your payroll.
Penalties for Misclassification
If you pay someone as an independent contractor who reports to your workplace daily and takes direction about how the work in performed, you could find yourself in trouble with the Internal Revenue Service. If the IRS looks into the situation and decides that your worker was actually an employee, even years after the fact, you might have to pay employment taxes for that person. Safety is also an issue. If an independent contractor is hurt while at your workplace, it's not a worker's compensation claim. It's a personal injury lawsuit.
Get It in Writing
Protect yourself from tax penalties and other difficulties by creating a written agreement with any independent contractor. Both parties should sign. First and foremost, the agreement should clearly state that this individual is an independent contractor, and that you both agree to this arrangement. Beyond that, you can include any terms you like. Common terms cover exactly what work the contractor is supplying and whether the agreement is open-ended or has a specific cutoff date.
An Employment Lawyer Can Help
The law surrounding the hiring of independent contractors is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact an employment lawyer.