Independent contractors play an important role in many companies. Especially in smaller workplaces in an unstable economy, business owners often choose to hire an independent contractor rather than add another employee to the payroll. This decision is beneficial if appropriately implemented. However, employers should be aware of the common, costly mistakes that can occur in these situations.
Why Hire an Independent Contractor
As a business owner, think about how long it took you to put your team together. The hiring process alone takes an ample amount of time to narrow down the candidates, ensuring you have the right one for your position. Then, consider the days, weeks, or even months of onboard training needed to prepare that employee to be useful in their job. However, that employee may not remain with the company for the hoped duration. Perhaps there is conflict in the workplace, they find another job, or some personal family struggle requires them to step away from their position.
Regardless of the situation, a new employee must be hired, beginning the process again. Experts say the hiring process alone costs a company approximately 20% of that employee’s annual salary. For many businesses, hiring an independent contractor is an attractive alternative, because:
- They work as needed.
- They are paid only for their results.
- They collect no insurance or other benefits.
- They earn no vacation time, sick days, or overtime pay.
- They pay their own taxes.
Be Careful Of Costly Mistakes
The Internal Revenue Service (IRS) and the Illinois Department of Employment Security (IDES) carefully monitor businesses to ensure proper classification of employees. During an audit, if an establishment lists an employee incorrectly as an independent contractor, the company will face steep penalties. Here are a few tips for avoiding a misclassification error when working with independent contractors:
- Pay per project rather than hourly.
- Allow them to set their hours or schedule.
- Compensate them enough to afford their benefits.
- Encourage them to work with multiple clients.
- Require them to work outside of the office.
- Have them pay for their tools and overhead costs.
- Ensure that they have a way of tracking their performance.
Get Legal Advice
Having a written agreement that outlines all expectations and the scope of work may help in avoiding miscommunication. However, this type of agreement is not a determining factor in an investigation by the IRS or IDES. If you have questions about differentiating between employees and independent contractors and addressing these issues during an audit, the skilled attorneys at Miller Law Firm, P.C. have the knowledge, experience, and dedication necessary to help resolve your legal issues. Contact a Schaumburg, IL employment attorney at 847-995-1205 today to schedule your free initial consultation.