With companies wanting to do everything possible to save money while still making sure business continues as usual, many have taken to hiring independent contractors instead of full-time employees. If you’re thinking of hiring independent contractors to help with consulting or a temporary project, learn more about your responsibilities and obligations to make the process smoother.
1. Question: What Are an Independent Contractor’s Rights and Duties?
Because you are essentially the independent contractor’s customer, you don’t have a say in where, when or how a project should be done. You essentially let the contractor know what you’d like for her or him to do and the date by which you’d like for the work to be done before giving the individual free rein. That being said, you still have a say in the exact specifications of any work done by independent contractors. It’s best that you’re always as specific and thorough as possible when handing out assignments to freelancers. This saves everyone time and frustration.
2. Question: What Defines an Independent Contractor?
Companies have to be careful in differentiating between employees and independent contractors, mainly because they can face legal damages in misclassifying an individual. Specific factors that determine whether or not an individual is an independent contractor include:
- The individual’s opportunities for profit and loss
- The permanency of the commercial relationship
- The degree to which the individual’s services are an essential part of the business
- The amount the individual invests in materials or equipment required for the job
- Each party’s overall degree and nature of control
- The degree of planning, creativity and initiative required of the individual to succeed in an open market
3. Question: What Taxes Are the Company Responsible For?
While a business does have to make sure independent contractors fill out the proper tax forms and that they send contractors a copy of their total earnings at the end of the tax year, businesses are not responsible for withholding a freelancer’s taxes throughout the year. Instead, contractors have to make estimated payments throughout the year in order to avoid penalties and fees. As long as you send your independent contractors tax forms listing the amount they were paid for services rendered, you are likely in the clear. Be sure to consult with an accountant or tax attorney should you have any questions or concerns.
4. Question: Should I Have Independent Contractors Sign Contracts?
This is an absolute must, no matter how minor the task the contractor performs. Not only do contracts go a long way in avoiding disputes, but they also help ensure everyone is on the same page in regards to the overall nature of the work being performed and the business relationship being formed. Another reason to have freelancers sign contracts is they help show the IRS you set out with the intention of hiring an independent contractor rather than a traditional employee. Just make sure everyone sticks to the stipulations laid out in the agreement, otherwise it’s worthless, and so is any protection it might have afforded you.
5. Question: Who Owns the Intellectual Property an Independent Contractor Creates?
To leave no question as to who owns any intellectual property created by an independent contractor, make sure you have a written assignment of copyright ownership included in the agreement the contractor signs. This assignment should be made clear to the contractor in order that there is no confusion. Know that there are exceptions to this rule, which is why it’s recommended you consult with a legal professional who specializes in intellectual property before you bring on an independent contractor. Doing so can help prevent blunders and poorly worded agreements.
Hiring independent contractors can be a great way to lower your overhead costs while fulfilling your business potential. Just make sure you understand everything involved with bringing on freelance workers.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.