independent contractor requirements & how to save on taxes
Post on 21-Oct-2014
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In today's presentation we continue our series on how to hire and manage employees with a look at the requirements when hiring an independent contractor and how you can save on taxes when doing so.TRANSCRIPT
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independent contractor requirements &saving money on taxesby FitSmallBusiness.com
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Why would you want to hire independent contractors?
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• No FICA Taxes• No Unemployment Insurance Tax• Potentially Lower Worker’s Compensation Cost• Bottom Line: Hiring people as independent contractors can save your business money!
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Why wouldn’t you want to hire independent contractors?
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• In some cases you legally cannot. The IRS provides guidelines for classifying workers. If you m i s c l a s s i f y e m p l o y e e s a s independent contractors, you can face fines up to $15,000 per instance or criminal persecution.
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• You have to give up certain rights to control or direct the person’s work. For example, you cannot tell an independent contractor when to start and stop working.
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• It can be the morally wrong thing to do. If a person works exclusively for you and cannot pursue other opportunities, you are cheating them out of money by classifying them as an independent contractor.
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What are the paperwork requirements for independent contractors?
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• For independent contractors that are US residents or citizens, you will need to fill out a W-9 Form. If you pay them more than $600 per year, you are required to issue independent contractors a 1099-MISC .Here are the Instructions for W-9 and 1099-MISC
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• For contractors outside of the United States, you should establish the contractor’s foreign residence. This can be accomplished by having the contractor fill-out a W-8BEN form.
Here are the instructions and a good article.
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Independent Contractor or Employee?
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There are three general guidelines for figuring out how one should classify a worker:
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1) Control - How much control does the person have over how they do their job? If the person has a great deal of discretion over how to do their work this is considered an independent contractor.
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2) Financial Arrangement - Is the “profitability” of the job determined by the worker? If there is no financial variability in the “profitability” of the job, then he or she is considered an employee.
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3) Business Relationship - Does the worker have a contract with the company, or receive benefits? An independent contractor will tend to have a contract, while employees will tend to receive benefits.
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If you hire and pay the contractor through a Freelancer site like Freelancer.com, Enlace.com or Odesk you can almost classify the person as an independent contractor.
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And Finally...
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