This is a deceptively complex question that’s important to answer “yes”, because the risk of your company facing an IRS or DOL audit has never been greater.
Independent Contractors (ICs) are self-employed, hired to do a specific job and receive payment only for the work performed. Unlike a regular employee, they pick their jobs and regularly move from client to client, business to business. Also referred to as freelancers, consultants and “1099’s”, they report the payments received as business income and pay self-employment taxes.
Hiring an independent contractor is attractive to those companies looking for outside creative resources, and who want to outsource work that is not central to their main line of business. The work is project-oriented and is typically completed in a short amount of time. And, you are better able to meet budget by paying your IC as a vendor, not as an employee.
But there’s a big catch.
The IRS has very strict guidelines that define true business-to-business relationships and payroll compliance. These guidelines are meant to prevent firms from misclassifying would-be employees and thereby avoid, either knowingly or unknowingly, a bounty of state and federal taxes.