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Guest post by Jennifer K. Halford, Esq.
Independent contractors are very much in vogue these days. I recently attended a Women in Business Conference where I was asked by a small business owner if she should hire an independent contractor for her business.
It occurred to me during our discussion that business owners generally understand the difference between employees and independent contractors.
Yet, few business owners appreciate how careful they must be when interacting with their independent contractors.
Failure to treat an independent contractor appropriately can have negative consequences for a business. A business may be forced to pay back payroll taxes, penalties, social security, disability, and wages. A business can also be subjected to statutory penalties and lawsuits.
It does not matter whether the worker is called an independent contractor or an employee. To avoid these consequences a business owner must treat the individual like an independent contractor.
So how should a business owner treat an independent contractor?
1. Use an independent contractor agreement: Have your independent contractor sign a written agreement that specifically sets forth his role as an independent contractor.
2. Don't tell the worker how to do the job: You can assign a task. You cannot tell the worker how to complete the task. The details of how the services will be performed must be left to the independent contractor.
3. Don't tell the worker when to do the job: You can set a timeframe for when the project should be completed. Don't tell the worker what days and hours to work to complete the task.
4. Don't tell the worker where to do the job: You cannot require the worker to primarily work at your place of business. Most independent contractors work out of their own office.
5. Don't tell the worker that they can't work for anyone else: Independent contractors must be free to provide similar services to other businesses.
6. Listen to the IRS: The IRS looks at certain factors to determine whether an individual is an independent contractor or an employee. A business owner or a worker can file an IRS Form SS-8 requesting the IRS to make a determination of the worker's status based upon these factors.
Remember that there is no set number of factors that will result in a determination that a worker is an employee or an independent contractor. You must be careful about how you treat your workers to ensure they retain independent contractor status.
Jennifer K. Halford is an attorney whose practice focuses on business law and estate planning. She is also a professor at California State University, Chico, where she teaches Entrepreneurial Law.