How To Hire Independent Contractors Carefully

You want to grow your business, but the thought of taking on employees--dealing with salaries

, payroll taxes and personality issues--scares you more than the latest Friday the 13th movie. Happily, there's a way to expand your company's capabilities without bloating it with staff: Hire independent contractors. But there's a fine line between employees and freelancers. To avoid complications with contractors, follow these three tips:

- Make sure your personnel are not employees in contractor clothing. The IRS carefully scrutinizes the use of independent freelancers, partly because companies have used them as a subterfuge to avoid paying employment taxes (You can bet the IRS wants you to pay as much in taxes as possible). The IRS will look to the degree of control you have over the worker. Do you dictate how, when and where the work will be done and by whom, using what method? If so, the worker is more likely to be considered an employee. For example, if you hire "Jemma" as an independent contractor to come to your office and answer your telephones with your company name from 9 a.m. to 5 p.m., the IRS is likely to consider Jemma an employee, even if you have a written agreement calling her an independent contractor.

- Outsource to companies. Working with a corporation avoids hassles down the road. You are not restricted to working with a giant company as there are many single-owner businesses that are more than competent. As a guideline, you don't have to supply a 1099 form to a corporation or an LLC for services rendered. By taking this tack, you avoid running into the confusion that surrounds the difference between an employee and a freelancer.

- Hire only independent contractors with insurance. When an independent contractor has insurance coverage ' specifically errors and omissions coverage, where necessary ' you know they are committed to their business and clients, and to protecting themselves against risk. In the event that you have to file a lawsuit against them, they are able to pay for any damages you may be granted against them. If they lack insurance, getting a favorable judgment doesn't amount to much if they don't have enough money in their bank to pay it.

Freelancers, when managed well, are a great asset to your business. Have an agreement in writing, just as you would with any other vendor offering significant services. Get an attorney to review your agreements before finalizing them, as a slight change in wording can be all the difference between getting caught and being well buffered. When your agreements are in order, you have peace of mind when you work with a "gun for hire."

Copyright (c) 2010 Ask The Business Lawyer

by: Nina Kaufman

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