There are many perks of hiring independent contractors, including being able to:
- Outsource tasks not core to your business
- Engage workers for specific, short-term, or highly specialized tasks
- End engagement whenever it makes sense
- Avoid much of the onboarding hassle
- Avoid paying a premium for benefits
Engaging independent contractors is very appealing, but is only to a company’s advantage when they stay in accordance with IRS guidelines. Otherwise, they could find themselves in very hot, very expensive water.
Three Business Principles to Stay Out of Trouble When Engaging Independent Contractors
Do Your Due Diligence Up Front
Doing the right things up front will save you headaches later. It’s that whole ounce of prevention thing. One of the most important things you can do to stay on solid ground is to classify workers correctly. It’s one of the very best ways to avoid unwanted interactions with the IRS. A worker’s classification is the foundation for what benefits they’re entitled to by law. There’s a misconception out there that the IRS is only paying to the big companies—the Ubers and Instacarts of the world. This isn’t true and it’s quite a risk to operate like it is. Expensive legal disputes over worker classification have affected companies whose names you’ve never heard of right alongside the Fortune 500 companies that make the headlines. Following the rules and classifying correctly from the beginning saves time in the long run and puts companies on solid ground if the IRS does come knocking.
Make Adjustments When Needed
Classification rules are always changing, right along with the employment landscape. Businesses cannot set something up and then forget about it. We cannot predict exactly how things will change, but we can be sure that they will. A new system could include portable benefits that travel with workers from company to company or something we’ve not heard anything about yet. Whatever happens, businesses that stay in tune with legal considerations are in position to adapt as those changes come. When a company doesn’t have the internal staff or bandwidth to accomplish this, engaging a third party to handle the details is a very sound business decision.
Have a Mutual Understanding—In Writing—With Every Independent Contractor
An independent contractor arrangement can be good for workers and companies alike. Many workers prefer the setup and, with lower costs to employers, it can be a win-win. Still, since workers have to make their own arrangements for retirement, health insurance, and worker’s compensation, which can be a burden. The main way to prevent issues surrounding this is for both parties to understand expectations up front. Whether they’re working for you for a one-time assignment or have a monthly agreement, having a contract with each independent contractor is important. It’s not just good for businesses. Having clear expectations up front is good for workers, too.
The Bottom Line
Currently, there is no standard playbook that guides businesses exactly how to pay contractors fairly while keeping costs down. To navigate it all legally and ethically, you must have the internal resources or the right partner that does. PayReel keeps up with the rules and developments and makes the adjustments on clients’ behalf. This handy guide helps determine whether having a third party handle these details is a good idea for your business. In addition to handling worker classification, PayReel handles other risky aspects of business, including payroll and payroll taxes. Going above and beyond by classifying workers correctly from the beginning, being in position to adapt to changes, and having a clear understanding of expectations is more than warm a warm and fuzzy notion. It’s a sound business decision, too.