There are several do's and don'ts of independent contractors. Independent contractors may be mutually beneficial for the employer and contractor, but classifying the difference between an employee and an independent contractor may not always be that easy. The Internal Revenue Service and the Department of Labor are cracking down on employee misclassification.

Benefits of Independent Contractors

An entity or person who is contracted to provide services or perform work for another business is referred to as an Independent Contractor (IC). ICs are required to pay their own Medicare taxes and Social Security. Many companies in the United States utilize ICs.

The relationship between a company and an IC is mutually beneficial. The company gains a qualified professional who is highly experienced in their field. The worker gains the flexibility to work for more than one company and can provide services when they choose. Additionally, companies appreciate that they do not have the legal responsibilities of a full-time employee which substantially decreases their costs.

Steps in Managing Independent Contractors

It is important to note that ICs must be managed much differently than hired employees. It is critical for a company to follow legal protocols when using ICs. If guidelines are not adhered to, significant problems may occur. For example, the government can reclassify an IC to employee status. This means the company will have to back-pay employment taxes to the government and be required to offer employee benefits to the IC if they decide to sue or claim unemployment benefits.

Essentially, a company will then need to advocate for itself against government agencies that support the ICs, such as the Illinois Department of Employment Security (IDES). This will result in significant financial losses and wasted time. When managing ICs, think of them as small, independent "mini-businesses."

ICs must be permitted to provide services in the manner in which they choose. It is not mandatory for ICs to adhere to your company's typical work methods. However, as their client, you can dictate deadlines and set requirements in the form of quantitative goals. Employers should not manage or supervise an IC in the same manner as they would a standard employee.

On the other hand, an employee is totally controlled by the employer. No matter how detailed, employees are required to follow corporate guidance, instructions, and the lawful rules of a workplace. Remember, businesses provide financial support to employees and assume a significant legal liability surrounding their employees.

What Should You Include in the Freelancer's Contract?

If an IC is creating content for your company, be sure to establish a "work made for hire" clause in the contract. This ensures that any content created by an IC is legally yours. These would include designs such as slogans, logos, and advertisements.

What Should Be Considered When Hiring Independent Contractors?

Be sure to clarify if the IC is allowed to use the work created for the entity in work samples or authorship claims. Failure to document the specifics may mean that the IC may have ownership over any materials that have been created for you.

Do's: Put the Proper Documentation in Place

When hiring an IC, an employer should be sure to do the following:

  • Have the IC sign an Independent Contractor Agreement.
  • Clarify the terms of the business relationship.
  • Confirm with the contractor that they are running their own independent business.

Don'ts: Providing Tools and Supplies

ICs should never be provided with the equipment or materials necessary to complete their job unless absolutely necessary. When hiring an IC, an employer should never do the following:

  • Pay ICs on a monthly, biweekly, or weekly basis.
  • Pay them at the same time other outside vendors are compensated.
  • Require ICs to submit invoices in order to receive payment.
  • Provide new work to the IC once the project has been completed unless a new IC agreement has been authorized.
  • Forbid the IC from utilizing subcontractors.
  • Allow ICs to work in your office unless the prerequisites of the tasks require it.
  • Provide employee policy manuals or handbooks.
  • Over-supervise when it comes to training or ongoing instructions.
  • Request frequent status reports.
  • Formulate the working hours.

Advantages of Hiring Incorporated Independent Contractors

You can decrease the odds of IC misclassification by hiring ICs that have incorporated their own companies, rather than partnerships or sole proprietorships. A three-tiered relationship is created when you hire an IC. You'll be paying the IC's corporation, which pays the IC, who's technically an employee of the corporation.

If you need help with the do's and don'ts of independent contractors, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.