When the recent recession led to more outsourcing and less hiring, businesses of all sizes saw the benefits of hiring independent contractors for small jobs and projects.
The benefits are obvious—you save money by not paying a salary and benefits; you can hire when your workload is heavy and stay lean when needed; and you don’t need to hassle with withholding income taxes, Social Security and Medicare taxes, and paying unemployment tax on independent contractors’ salaries as you must with employees. Plus, you’ll most likely be able to hire more specialized and skilled workers that you couldn’t afford if you hired them as full-time employees.
However, hiring independent contractors is not without risk—especially when a project falls through the cracks or you run into a potential problem with the IRS. Here are the three biggest mistakes small business owners make when working with independent contractors:
1. You Get Too Comfortable
Which means you start treating your independent contractor like an employee. The IRS has very specific rules and guidelines for how to classify people who work for your business. It’s an easy mistake to make, but basically, a person is classified as an employee or an independent contractor based on how much independence they have.
The IRS uses three tests to assess independence:
Do you control the way the worker completes the job, such as requiring certain hours be worked or the use of certain tools?
Do you reimburse the person for expenses, or does he or she pay them?
What type of contract do you have with this worker? Does the person get any benefits, such as health insurance?
2. You Do Not Set Expectations
If you know your independent contractor relationship is on the up and up according to IRS guidelines, make sure you’ve spelled out exactly what results you want for the project and how payment will be handled.
Did you check with any references about the person beforehand? Did you discuss how many revisions can be made for free and what will have to be paid for? Make sure there is a specific end to the relationship, such as a date, product delivery or whatever constitutes project completion.
3. You Get Disconnected From Projects
Even though the independent contractor is not your employee, you do need to make sure you’re staying on the same page as far as project results. Ask for updates, and if you want to make approvals throughout the project, ask for that, too. Schedule weekly or biweekly calls so everyone knows the status of the project and so that you and/or the contractor can answer any questions.
Outsourcing your projects can be the perfect solutions for your company, just be sure that you do not allow outsourcing to harm your business and the overall quality of the work provided by avoiding the above mistakes.
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