Are you confused about whether you should hire a contractor vs
employee? If so, you're not alone. Knowing when it's time to
hire a contractor instead of an employee is one of the most
confusing aspects of employment for many businesses. Below we
have provided some tips to help you sort through the confusion
regarding independent contractor vs. employee hiring.
One of the most critical aspects of understanding contractor vs.
employee hire is in understanding each are classified. If you
should incorrectly classify someone as either one or the other,
you could held liable for employment taxes as well as a penalty
by the IRS.
The basic rule of thumb to remember when trying to determine
whether someone is a contractor or not is by asking yourself
whether you have the right to control or direct result of the
work or the means and methods of accomplishing the result. If
you only have the right to control the results of the work, then
the individual is a contractor. However, if you have the right
to control the means and methods by which the work is
accomplished, then the person is an employee.
If you keep the rule regarding what you have the right to
control and direct in mind, it will help you to remember the
difference between employee and contractor hire. Knowing when
and how to hire a contractor; however, requires understanding
the various advantages and disadvantages of each classification.
One of the biggest myths regarding contractor vs. employee hire
is that you won't be required to deal with reporting income on
contractors. This is only partially true. You are still
responsible for reporting wages that you pay to an independent
contractor if you pay that person more than $600 per year. This
information is reported on IRS Form 1099-MISC, Miscellaneous
Income.
When you make the decision to hire an independent contractor, it
is always a good idea for both of you to sign an agreement
putting forth the terms of your business relationship. This
agreement should include the services which are to be performed,
the timing regarding when the services are to be performed,
specific information on the payment for the services,
confidentiality, warranty and work for hire information.
If you are not familiar with the terms work for hire or you
aren't sure about what kind of confidentiality information you
should include in an independent contractor agreement, take a
look at these tips.
Generally, most independent contractor agreements include
information that states the contractor is not allowed to use any
proprietary information they learn about your company during the
course of working for you that could be used for any other
purpose than the benefit of your business.
It's very important that you include a work for hire statement
in your agreement. This stipulates that the work or product
which is developed will be liable to copyright laws and as such
will be owned by your company; not the contractor.
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