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What tax forms are needed for independent contractors?
W-9 form needs to be completed by the contractor before beginning any work. And you’re responsible for issuing a 1099 by January 31 the following year for tax purposes. One more paperwork tip — always request an invoice for work completed. Having an invoice helps validate independent contractor status.
Can an outside salesperson working on commission only be classified as an independent contractor?
In most cases, outside salespeople, especially realtors, do get a 1099 at the end of the year, but don’t confuse this with someone who is an employee of a given company and there are certain bonuses or commissions they get while working there. Perhaps they get a draw, but they still get a paycheck every week. Those are employees; any money you give to them will be part of their W-2 wages.
My independent contractor works on site and I provide a temporary workstation and office supplies. Is that okay?
An IC shouldn’t have a dedicated office. If it’s a temporary space for the term of the contract, that’s okay. When it comes to providing supplies, I would say it’s best not to provide them. Generally, contractors should use their own materials for the work performed. That includes office supplies, equipment, uniforms and other materials.
Is it okay that an IC is paid by the hour?
Typically it is best to pay an independent contractor a flat fee for the entire project as opposed to hourly, but as I said in the presentation, sometimes paying a flat fee isn’t practical like with the lawyer example. But if you are paying per hour, you want to make sure the other factors point to an independent contractor relationship.
Can you hire the same IC over and over?
Again here, you can do it but it is better not to do it. Remember there isn’t just one factor that makes a worker an independent contractor over an employee. So yes, there may be a situation where one contractor provides better work at a better cost so you want to use that person time and time again. Perhaps you are in a location where independent contractors with a specific set of skills and expertise are hard to come by — then yes, you will have to use the same contractor over and over. But, just make sure you are protecting yourself by making sure all the other factors point to an independent contractor relationship.
What if you have a two-year project? Is that too long to be considered an IC?
So this answer is again the same as the previous two questions — sometimes you may have a project that lasts a longer amount of time but it’s still temporary. As long as you again are protecting yourself by having an independent contractor agreement and making sure the other factors show an independent contractor relationship, you may still be fine with your classification.
Can you give IC’s due dates for projects and they still be considered IC’s?
Okay, so I am seeing a trend with most of these questions and, looking down the list too, I see other similar questions where you are concerned that your worker is not meeting the threshold under one specific factor in our tests. So for this question, our participant is concerned about giving the worker a due date. In other questions we received, participants want to make sure that paying the worker using his personal name as opposed to a business name is okay or can we provide an email address if the independent contractor requests it.
One factor alone may not be enough to disqualify someone from being an independent contractor — you have to look at the totality of all the factors combined, and no two situations are likely to be the same. There are no clear lines I can draw for you and say, “if you do X then the worker is Z.” It doesn’t work that way under the law. It’s going to be an evaluation of the entire relationship.
But as a general statement to summarize, the more control you have over the worker, the more likely that worker is an employee. Remember that these agencies want to make sure you are classifying the workers correctly because they care about getting their taxes and employee rights, so if you are really unsure of the proper classification you can take a very conservative approach and err on the side of caution and classify the worker as an employee. That is the safest way to go, although it may not be the most cost-effective way to go. And, of course, you could and I would recommend working with an employment law attorney to help you with your classifications as well.
Can an IC refuse to sign a noncompete, and why are they required if they are possibly working with like customers?
Yes, an IC can refuse to sign a noncompete; he or she can even refuse to sign any type of contract, just like anyone. Then you have to make a choice if you want to work with them or not. Obviously, I wouldn’t work with someone that refuses to sign an independent contractor agreement at all. Now, noncompete agreements, on the other hand, are subject to state and local laws. So if you want to have the IC sign a noncompete then you need to evaluate whether you even need it for your business. Is there a reason you need it? Will the IC have access to information that you would even make a non-compete necessary?
If you feel that a noncompete is necessary, make sure you are looking to make sure the work needing to be done isn’t integral to your business. Then look at the applicable laws and see if they are even allowed and, if so, if there are any restrictions. So, if you find that you do have a need for a noncompete agreement and it is allowed under applicable laws, then you may require an IC to sign it or, if he/she refuses, choose to work with another independent contractor.
If you have classified a worker and he/she should have been an employee, can you just start paying him/her as employees when you find out you have made a mistake rather than going back months or years to correct the problem?
Well you should definitely make a correction if you have found that you have misclassified workers and start paying them and follow all the other laws that apply to employees immediately. This will help you cut off your liability if the worker were to report you for the misclassification. It will not, however, protect you from back pay and penalties for the time they were misclassified. You may want to speak with an employment law attorney to figure out the best way to make the transition. The attorney may be able to give you advice on the best way to implement changes without setting off alarm whistles for your workers.