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To-Do List for Successful Relationships with Independent Contractors

The gig industry is exploding at an incredible rate, with many companies turning to the services of independent contractors as an alternative to hiring employees. As a small business owner, it is likely that you are working with contractors, and you might also offer contract services to other businesses. In fact, it is estimated that contractors will make up 40% of the workforce by 2020!

Whether you are thinking about hiring a contractor for the first time or you are already working with contractors, it is smart to consider the right strategy to protect your business, maximize results, and maintain a successful business relationship at the same time.

Benefits of Hiring Independent Contractors

Why are many companies turning to independent contractors instead of hiring employees? In decades past, it was common for a business to bring in new employees when manpower and additional skills were required. But the business climate has changed, and business owners are shifting their strategies to accommodate these differences. Here are some of the common reasons why business owners choose independent contractors:

  • Reduce Overall Costs: Since contractors are self-employed, they manage the behind-the-scenes details such as insurance benefits, employment taxes, and other admin functions. Reduce these overhead costs, and you can decrease your overall expenses for the services that are required. Plus, you have the option to hire the contractor for the weekly work that is needed, without the obligation to pay a full-time salary if you don’t need that many hours.
  • No Need for Office Space: Another way that you can reduce your costs is by eliminating the need to make space for another person in the office. Independent contractors don’t work in-office, which gives you the option to reduce your rent by selecting a smaller office space. Additionally, you don’t have the overhead expenses of office furniture, computer equipment, office supplies, and other details required for setting up an office for that person.
  • Temporary Support: Sometimes you need services for a short time, making it beneficial to bring someone in for temporary support. Paying on a project basis gives you the option to choose how long you will continue working with the contractor. When these services are no longer needed, you don’t have to worry about lay-offs or unemployment claims. These temporary contractor services are great for one-time projects such as a website redesign, or if you need seasonal assistance when you can’t keep up with the busy season in your industry.
  • Self-Management: Since you are hiring a contractor who is an expert in the industry, you don’t have to worry about high levels of management. The person is hired to handle their responsibilities in the project. You can expect those services to be completed without the need to drive the project with focused management every step of the way. Contractors tend to have higher levels of “self-starter” skills compared to standard employees.

As you can see, there are many reasons why you might consider working with a contractor instead of bringing on another employee.

Tips for Getting Started with a Contractor

Now that you can see these benefits, you might be ready to jump in by hiring contractors to assist with your workload. But there are a few must-do things that need to be completed to ensure you are protecting your company and staying in the bounds of the law. Here are a few tips that should be added to your to-do list:

  1. Tax Documents: The contractor doesn’t need to sign a W4 because they don’t have employment status with the company. A W4 is the IRS document used to calculate the Federal taxes that need to be withheld from the employee’s payment. Since you are hiring a contractor (not an employee), this person will receive a vendor payment instead of a paycheck. So, you don’t need to worry about any tax withholdings because the contractor is responsible for the necessary tax payments. The correct form that they should sign is Form W-9, which should be completed before work commences. This paperwork ensures that you are hiring someone who is legally allowed to work in the US. They will need to provide their resident or citizen information, and then this information is submitted to the IRS each year along with the amount of money that was paid for services.
  2. Send Form-1099: When a contractor is paid $600 or more in a calendar year, then you are required to file tax paperwork documenting the income. This paperwork needs to be postmarked by January 31st for the previous calendar year. Additionally, a 1096 transmittal form needs to be sent to the IRS, summarizing the payments that were provided to contractors.
  3. Signed Contract: A handshake deal is a recipe for disaster. Never assume that you have a common understanding of the project without creating an agreement that is signed by both parties. This contract lays out important details such as the payment structure, the scope of work required, and ownership of intellectual and physical property when the project is complete. While you aren’t legally required to have a signed contract, it is a smart step to protect the interests of your company.
  4. Work Expectations: Be careful about the expectations that are placed on the contractor. There is a fine line between contractor and employee, and you need to be sure that you aren’t crossing that line. For example, a contractor needs to flexibility to choose when and where the work is performed, and the worker must use their own tools for the work that is completed. If you require the worker to be on the project at certain times and you are supplying all of the equipment and materials that are required, then it is likely that the person should be paid as an employee instead. If you have questions about the difference between a contractor and an employee, then it is smart to talk to a payroll expert for advice.
  5. Maintaining Records: In the same way, you need to track employee payroll and performance, it is necessary to keep records of the details related to your contractors. Store a copy of the contract on file, as well as other essential information such as invoices that are billed for the work completed and proof of payment. Make sure there is a paper trail documenting communication and payment so that you can show the details if questioned about the payment and services provided.
  6. Payment Schedule: If the contractor demands up-front payment, then you might find yourself in a tricky situation if the work is not completed according to your agreement. It is common for payment terms to be established in advance. Make sure that you have a shared understanding about when invoices will be sent, the timeframe in which payments need to be received, and how much will be paid for the services. Many business owners have found that it was a mistake to issue full payment upfront, especially when the contractor isn’t motivated to perform or finish the work when the payment was sent in full. You might agree to a payment schedule of half up front and half upon delivery or completion. Or, create a monthly billing schedule with the contractor sending an invoice each month for the work that is completed.

These tips might seem simple, but they are essential to help you in protecting your company and maintaining a strong working relationship with the contractor that you’ve hired. A little bit of proactive work goes a long way to ensure success of the project.

Services to Outsource

When does it make sense to hire an outsourced contractor instead of an employee? Here are examples of services that you might choose to hire a contractor for assistance:

  • Online Marketing: Digital content can be produced by a contractor so that you don’t have to worry about having an in-house marketing expert in your company. Many business owners find that online marketing is more affordable and more effective when hiring a marketing firm instead of attempting a DIY approach. These services might include tasks such as graphic design, content writing, ad management, and more.
  • Bookkeeping and Accounting: Having a strong tracking system for your business expenses and financial reports is essential to ensure success with your company. The busy work of tracking transactions and managing your business financial information can take up a lot of time each week. Turn your attention to other business responsibilities by hiring an accounting and bookkeeping team for assistance instead.
  • Payroll Processing: While this topic can fall into the category of bookkeeping and accounting, it deserves mention on its own. Payroll has a long list of requirements and can be a burden on your company. Hiring independent contractors for assistance ensures that you are staying current with the latest laws and regulations.

If you are searching for a great team of independent contractors to assist with your bookkeeping and accounting tasks, then Easier Accounting is here to assist. Call us to learn about the way your small business will benefit from these available services: (888) 620-0770.