These days, a lot more companies are using temporary labor and freelancers to pump up their labor force. If the poor economy forced your company to scale back its personnel, you may be facing the challenge of increasing staffing to meet renewed demand.
Temp agencies and independent contractors offer businesses the ability to meet short-term employee needs without the hassle or cost of offering insurance options and other benefits. However, this form of labor comes with its own set of risk and compliance requirements.
Taken from The HR Manager’s Guide to Proper Worker Classification, we recommend requesting to see these 10 things before you decide to hire a new independent contractor.
1. A signed contract and W-9 form. As required by the Internal Revenue Service, the W-9 has to be retained by the employer for four years. (On the company’s part, it will have to fill out the Form 1099-MISC.) Be sure that the contract includes specific terms, including limits on the agreement duration and the rate that will be paid out during that period. Clearly define expectations for when and how work will be delivered – since freelancers typically do not come into the office on a daily basis, it can be harder to manage them remotely. Agree on a payment system; will the contractor be hired on a weekly, biweekly, or monthly basis? Will the company deliver a portion of the payment at the outset of the project, and give the rest in a lump sum once the work is completed?
2. A statement or application listing all fictitious or assumed business names – just as you do when hiring a full-time employee.
3. Examples of the contractor’s marketing materials, such as advertisements or listings in the Yellow Pages. Looking up a contractor on public review websites, such as Yelp, is also a good way to vet a potential hire.
4. Website URL, invoice form, a business card or professional letterhead.
5. Literature regarding how the contractor’s business is structured – is it a sole proprietorship, a partnership, a corporation, a LLC? This provides insight about operational organization and can be a good point of reference when communicating with the contractor.
6. References or contact information for other clients. Checking in with other entities that have had a business relationship with the contractor is a good way to make sure you’re making the right hiring decision, and can also flag potential problems that could create a snag in completion of the project or pose logistical issues.
7. Copies of insurance certificates. Hiring a contractor that has his or her own insurance shows responsibility, and may help protect your company from liability.
8. Having a phone number and address of the business is useful, not just for contact information, but to verify that the company is legitimate.
9. An Unemployment Insurance Number, or if the contractor has employees, ask to see an Employer Identification Number.
10. Copies of business and/or professional licenses. You want to make sure your company is hiring only skilled, and just as importantly, licensed contractors who are legally cleared to perform the work you require.
If you incorrectly classify a worker, you could be subject to penalties by the IRS and by many states. Some analysts believe that this year, the IRS will perform over 2,000 random employment tax audits and one of the things they are scrutinizing is the classification status of independent contractors. Be sure to educate and prepare yourself by reading The HR Manager’s Guide to Proper Worker Classification.
Do you have any stories of nightmare independent contractor situations?