Utilizing Independent Contractors
Purpose of Process:
The purpose of this process is to provide guidance in acquiring independent contractors to fill temporary job openings.
Recommended Steps in the Process:
- Identify the need for Independent Contractors
Independent contractors are typically used to perform highly specialized tasks which are needed for a short period of time. Their hourly rate is typically much higher than regular employees. This is due in part to the independent contractor's cost of doing business (providing their own benefits, equipment, marketing, etc.).
The Internal Revenue Service (IRS) has established strict guidelines on defining independent contractor. The penalty for employers is high if the employer misclassifies an employee as an independent contractor. Review the "Checklist to Determine Status as Employee Versus Independent Contractor."
- Locate Independent Contractors
Independent contractors are most often located through employee referral. Many advertise in trade journals or through professional organizations.
- Select the Independent Contractor
If you are familiar with the work of the independent contractor (have seen his/her work previously, etc.) there is no need to interview. If you are not familiar with the candidate, use an interview process similar to what is used to hire regular employees.
- Ensure Compliance with IRS Regulations
Now that you have a specific contractor and assignment defined, review again the "Checklist to Determine Status as Employee Versus Independent Contractor." If you cannot pass the independent contractor criteria, consider "payrolling" the contractor. This can be done with an outside contracting agency. The contract agency rates are typically lower if you find the candidate, rather than they find the candidate.
- Execute an Independent Contractor Agreement
See the sample Contractor Agreement form.
Process Tips:
Establish a company policy or practice of limiting the length of a consultant agreement to six months to avoid blurring the distinction between consultant and regular employee. There is a risk that if the IRS determines the consultant to be a regular employees, then the company would owe back payroll and FICA taxes. In addition, employees could use an IRS determination to support their claim for loss of company benefits.
