February 26, 2021
Blog Are you looking to hire a 1099 independent contractor, but aren’t sure if it’s the right decision for your business?
According to recent data, approximately 15.5 million Americans work as independent contractors. While there are a lot of benefits to working as and hiring an independent contractor, there are some things you need to know before you hire one.
Check out this guide to discover what you need to know before hiring an independent contractor.
Understand the Pros and Cons
Before hiring an independent contractor, you need to understand the pros and cons of doing so. Here are some of the biggest benefits:
Save Costs
If you hire an independent contractor, you don’t have to pay for healthcare benefits, state or federal payroll taxes, unemployment, or unemployment.
You also don’t have to worry about paying for travel expenses, office equipment, office space, or other expenses that come with hiring full-time employees. Plus, you can pay independent contractors by the hour or by the assignment.
However, if the contractor is working onsite, you’ll want to purchase worker’s comp insurance so your business is protected in the event of an injury.
In other words, you only pay them for the exact amount of work they do. If there are lulls in your business, you don’t have to worry about paying your independent contractors, finding extra work for them, or laying them off and rehiring them later on. You can simply say that you’ll contact them when you have more work available.
Less Likely to Deal With Workplace Lawsuits
When hiring independent contractors, you can’t be sued for common labor lawsuits such as workplace injury or wrongful termination. In rare circumstances, you could be hit with a discrimination lawsuit, however, this is highly unlikely.
Access to a Variety of Experts
Hiring independent contractors means you don’t need to wait to find the perfect candidate with a laundry list of skills and proficiencies. Let’s say, for example, that you need help with graphic design, marketing, and copywriting.
Instead of searching for someone with all of these skills, you can’t hire different independent contractors who are experts in each of these individual areas.
Now, let’s look at some of the downsides of hiring independent contractors:
Varied Availability
Let’s say you hire an independent contractor for a specific project, and they do great work. Then, the project ends, and a few months later, another project pops up with a quick turnaround time. If the same independent contractor isn’t available, then you need to restart your search.
Minimal Supervision
Independent contractors almost always work remotely, especially if they work in creative roles. Because of the lack of supervision, you’ll need to work harder to set up a communication plan that works for both of you.
Could Work for Your Competitors
Even if you find a great independent contractor, who’s to say they’re not also working for your competition? While you can work in a non-compete clause into your contract, that may deter a lot of contractors from working with you altogether.
Gather the Right Forms
Before you hire an independent contractor, you need to make sure you have the right forms organized. Here’s what you’ll need:
W-9
The IRS requires independent contractors to fill out a W-9 form. This form asks for the name of the contractor and their taxpayer identification number (this may either be an employer identification number or social security number).
When filling out this form, make sure your contractor opts to not have their taxes withheld. Because an independent contractor is a separate business entity, they should file their own self-employment taxes.
1099-MISC
If you pay an independent contractor $600 or more for their services, you’ll need to provide them with a 1099-MISC form. You typically need to send this form to your independent contractors by January 31st so they can report their earnings on their taxes.
Luckily, you can now send these forms through email.
Written Contract
Before you hire an independent contractor, it’s important that you put together a written contract. This contract should outline the scope of the project, the deadline for the project, and how much you’re going to pay them and when.
You should also specify in the contract that you have the right to terminate an independent contractor if their work is substandard. You’ll also want to discuss ownership rights in your written contract.
Understand How Intellectual Property Works
Unless otherwise specified, your contractor owns the copyright to their work. This means that your contractor has the right to sell a license to someone else for the same work they did for you.
The only way to get around this is to specify in the contract that the product is work made for hire. A work for hire arrangement needs to meet three conditions in order to be considered valid. Here’s what conditions need to be met:
- The work must be specially ordered or commissioned
- Both parties need to sign an agreement that the work is made for hire prior to the start of the project
- The work must fall into one of the following categories: contribution to audiovisual work, translation, or contribution to collective work such as an atlas, an instructional text, a magazine, a compilation, or a text
If you meet these conditions, you’ll be good to go.
Are You Ready to Hire a 1099 Independent Contractor?
Now that you’ve read this guide, you’re ready to hire a 1099 independent contractor. Even though you’re not hiring your independent contractor as an employee, you still want to take the candidate search very seriously.
Create legitimate and detailed job postings, ask for references, run background checks, ask to see a portfolio of work, and do whatever else you need to do to find the best person for the job.
If you’re hiring an independent contractor for onsite work, you’ll also want to purchase worker’s compensation insurance. Click here to learn more about worker’s comp insurance.
