Independent Contractors (Emphasis on Independent)
Hiring independent contractors has become increasingly popular in today’s economy for small businesses. We’ve seen the number of these 1099 workers continue to rise in our SurePayroll Small Business Scorecard®. Businesses are needing extra help in certain areas, but it’s often cheaper to use a contractor rather than fill a full-time position.
As an advisor to small businesses, it’s important that you make your clients aware of what really differentiates an independent contractor from a W-2 employee.
The following are some of the key factors:
- Payroll taxes – Small business owners do not have to withhold Social Security or Medicare taxes, or make federal and state unemployment insurance contributions, on behalf of independent contractors. The small business owner is responsible for preparing and mailing out 1099 forms to each contractor.
- Independent hours – Contractors should be allowed to work whenever and however they want. If your clients are telling their so-called independent contractors they have to show up 9 to 5, you should let them know they’re violating the independent part of the deal.
- Risk – Independent contractors are responsible for their own equipment and workspace. They’re taking on the risk for that part of the job. Employers usually pay a set price or an hourly rate for these services, but don’t have to invest further than that.
There are certainly advantages in hiring independent contractors and small business owners can save money using them, but make sure your clients are not violating the requirements for classifying them as such.
Michael Alter, payroll expert with an MBA from Harvard Business School, is a nationally recognized spokesperson providing thought-leadership and sensible advice to help accounting and payroll professionals build deeper more profitable relationships with clients. Alter, President of SurePayroll, writes the Trade Secrets column on INC.com and is frequently published in Bloomberg TV, the Wall Street Journal, and Entrepreneur Magazine.