Every thing You Ought to Know About Hiring a Contractor

As a small enterprise proprietor, it’s your duty to know who’s the very best individual to rent for a job. Typically which means including an worker to your roster. Different occasions, it means hiring a contractor. Hiring a contractor might help fill momentary or project-oriented positions.

Learn on to get the inside track on hiring impartial contractors on your small enterprise. 

Unbiased contractor classification

Unbiased contractors are completely different than full- or part-time staff. Contractors are self-employed and supply a very good or service to your corporation based mostly on a contractual settlement. 

In contrast to staff, you should not have to do the next whenever you work with contractors:

  • Present healthcare or advantages
  • Pay for unemployment and employees’ comp insurance coverage
  • Withhold and pay taxes on contractors’ wages (except they’re topic to backup withholding)

You could find impartial contractors with a wide range of experience, similar to:

  • HVAC
  • Roofing
  • Landscaping
  • Masonry
  • Plumbing 

However earlier than you deliver on a “contractor,” you need to classify a employee appropriately. Thirty p.c of employers have misclassified employees as impartial contractors, depriving staff of employee safety legal guidelines, unemployment advantages, and employees’ compensation. Misclassification can be dangerous information for you. There are heavy penalties in the event you misclassify a employee as a contractor. Felony penalties can embrace a $1,000 high-quality for every misclassified employee and as much as a 12 months in jail. 

You’ll have to look over three regulatory teams with separate classification pointers. These teams embrace:

  1. IRS 
  2. Division of Labor 
  3. State governments

For those who’re uncertain find out how to classify a employee, you may submit Kind SS-8 and the IRS will decide the employee’s standing for you. This course of can take as much as six months. 

1. IRS classifications

Based on the frequent regulation guidelines of the IRS, a employee’s classification as a contractor is determined by how a lot management you’ve gotten over them. Typically, employers have extra management over their staff and much much less management over an impartial contractor. 

The IRS divides the diploma of management between an employer and an impartial contractor into three classes:

  • Behavioral. Who decides how the contractor behaves (e.g., how they costume, the hours they work, or the instruments they use)? For those who management the employee’s conduct, you’ll have an worker and never an impartial contractor.  
  • Monetary. Who controls the contractor’s financials? Do you provide the contractor with instruments? Do you’ve gotten the power to manage their earnings and losses? Staff start to maneuver into worker territory in the event you provide provides and management their earnings and losses.
  • Relationship. What advantages do you provide the employee? For those who present advantages like medical health insurance and paid time without work, your employee could also be an worker. 

Once more, the extra independence your employee has, the extra probably they could be an impartial contractor. 

Let’s take a look at an instance of somebody that doesn’t qualify as an impartial contractor utilizing these pointers. 

{A magazine} firm employed a contract author for an article in an upcoming version. At first, the author appeared to fall beneath the class of an impartial contractor. They set their very own hours and provided their very own pc, keyboard, and desk. However, over time, the author printed extra articles for the journal, was reimbursed for provides, and was provided medical health insurance. 

On this case, the employee was an worker, not an impartial contractor. 

2. Division of Labor classification

Heads up! How the Division of Labor classifies impartial contractors is altering. Verify in with the DOL for any updates. 

As of March 8, 2021, the Unbiased Contractor Remaining Rule (ICFR) simplified necessities by lowering classification elements from six to simply two. The ICFR states that an important elements are 1) who has management over the work and a pair of) the employee’s alternative for revenue or loss. 

As an example, beneath the ICFR, a employee who controls their work and has a larger alternative for revenue or loss is assessed as an impartial contractor whatever the different necessities. 

But when these two elements are too tough to reply, three different elements come into play. 

The three extra elements embrace:

  • The talent or experience required to carry out the work
  • The permanency of the work relationship, AND
  • Whether or not or not the work is integral to the employer’s enterprise

Let’s take a look at an instance of a employee that does qualify as an impartial contractor beneath the ICFR.

The heating and cooling system of an area bakery just lately broke down. The homeowners looked for an HVAC skilled to put in a brand new system. The HVAC skilled was totally self-employed and managed each facet of their enterprise. Additionally they managed their revenue and loss. They may lose cash in the event that they don’t safe contracts for his or her HVAC enterprise. The bakery had no say in whether or not the HVAC enterprise succeeded or failed. 

On this case, the HVAC skilled is an impartial contractor beneath the ICFR.

3. State classification

State labor departments have extra restrictive necessities to find out whether or not a employee is an impartial contractor. Greater than 20 states have adopted the ABC take a look at. How does the ABC take a look at work? The take a look at assumes {that a} employee offering providers for an employer is already an worker, not an impartial contractor. It’s as much as the employer to show in any other case by three interlocking elements (e.g., A, B, and C).  

To move the ABC take a look at and qualify for impartial contractor standing, the employee should:

  • Be free from the management or path of their employer beneath the phrases of the contract and in actuality
  • Carry out work that’s completely different than the first work the employer’s enterprise does for his or her prospects
  • Have an ongoing enterprise with a number of prospects and have interaction in the identical kind of labor for these prospects

So, what does this appear to be in motion? Let’s take a look at an instance of a employee that does qualify as an impartial employee beneath the ABC take a look at. 

A espresso store wanted to put in new home windows, in order that they employed a glazier for the job. The proprietor of the espresso store used the ABC take a look at to show that the glazier was an impartial contractor and never an worker. The glazier was an impartial contractor as a result of the:

  • Espresso store didn’t management how the glass installer did their job in any manner
  • Espresso store didn’t even have a enterprise putting in glass
  • Glass installer operated their very own enterprise putting in glass for a number of prospects

What states use the ABC take a look at?

The next states use the ABC take a look at to find out if a employee is an impartial contractor or an worker:

  • Alaska
  • California
  • Connecticut
  • Delaware
  • District of Columbia
  • Hawaii
  • Illinois
  • Indiana
  • Louisiana
  • Maine
  • Maryland
  • Massachusetts
  • Nebraska
  • Nevada
  • New Hampshire
  • New Jersey
  • New Mexico
  • New York
  • Vermont
  • Washington
  • West Virginia

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Hiring a contractor

Relaxation assured, there’s an impartial contractor to deal with your subsequent undertaking. However to try this, you want to know find out how to rent impartial contractors for your corporation. 

Listed below are 4 issues to contemplate:

  1. The place to search out impartial contractors
  2. Easy methods to assess their {qualifications}
  3. What paperwork to file
  4. Easy methods to pay them
Four steps to hiring an independent contractor. 
One. Find independent contractors. Use a freelance website and post the job online and locally. 
Two. Assess their qualifications. Check in with their references and perform a background check.
Three. File the proper paperwork. Create a contract covering the project or the reason for hiring the contractor. Get a Form W-9 from the contractor. 
Four. Pay them correctly. Don

1. The place to search out impartial contractors

Earlier than you rent an impartial contractor, you’ll have to search out them first. Right here are some things to attempt to discover the right impartial contractor on your subsequent undertaking:

  • Use a freelance web site to get the phrase out. Freelance web sites allow you to discover contractors in your space, evaluate charges, and browse opinions. 
  • Put up the job itemizing on a job search web site. Unbiased contractors in your space are on the lookout for work. A job search web site might help you discover them.
  • Put up the job itemizing domestically. “Assist Needed” indicators and native job postings nonetheless work, particularly for contractors. 

2. Easy methods to assess their {qualifications}

So, you’ve discovered a number of attainable candidates. However, you continue to have a nagging query: What to search for when hiring a contractor? 

Earlier than bringing on an impartial contractor, be certain they signify themselves precisely. Right here’s what it’s best to do:

  • Look over their {qualifications}
  • Search for on-line opinions
  • Carry out a background verify 

Look over their {qualifications}

{Qualifications} can embrace industry-specific licensing or training necessities. As an example, an HVAC technician will obtain an HVAC certification as soon as they’ve undergone the required coaching. 

Perform some research earlier than you speak to any contractors so you already know what {qualifications} to ask for. 

Search for on-line opinions 

On-line opinions are a fast technique to learn the way good a contractor is at their work. Search for the contractor’s enterprise web site. In the event that they don’t publish user-generated content material (e.g., buyer opinions), chances are you’ll need to do some extra analysis. Verify different enterprise evaluate websites to see how the contractor is doing. 

Carry out a background verify

Background checks might help just remember to aren’t contracting with somebody who could hurt your corporation or different folks. As an example, chances are you’ll not need to rent an impartial contractor recognized for theft in the event that they’ll be alone in your corporation after hours.

3. What paperwork to file

Hiring impartial contractors requires paperwork. Right here’s what you’ll have to get out of your impartial contractor earlier than they begin give you the results you want. 

New rent paperwork for a contractor contains:

  • A contract that covers the extent of the undertaking or motive you’ve employed the contractor
  • The contractor’s Kind W-9

Unbiased contractors should embrace their tax identification quantity (TIN) on their Kind W-9 (e.g., their Social Safety quantity).

4. Easy methods to pay them

You probably have staff, you’re used to withholding revenue and FICA taxes and paying unemployment taxes on their wages. 

However, you typically don’t have to withhold or pay taxes when paying a contractor. You solely have to withhold taxes from a contractor’s wages if their earnings are topic to backup withholding.

Report funds to contractors yearly utilizing IRS Kind 1099-NEC, Nonemployee Compensation.

Unbiased contractors could also be good on your subsequent undertaking. Be certain to pay them appropriately. With Patriot’s Full Service payroll, you may run payroll for workers and contractors on the similar time. And, Patriot will e-File 1099s for Full Service Payroll prospects at no extra cost. Begin your free trial now!

This isn’t supposed as authorized recommendation; for extra data, please click on right here.