by Lesley Pyle, MSc., founder of HireMyMom.com
Independent contractors can change the way your business operates. The right contractor can help you take your business to a new level by letting you ta[ a pro who otherwise might not fit into your budget. It’s also a desirable situation for many workers, including parents with childcare needs, recent retirees looking for more freedom while staying engaged, and those looking to build additional skills or pursue passions that aren’t part of their regular 9 to 5.
Moreover, COVID-19 has added to the list of reasons people seek independent contractor work. Many professionals have stepped out of the workforce to facilitate e-learning or hybrid school schedules until schools resume normal operations.
According to the Gig Economy Data Hub, the exact size of the independent contractor workforce is difficult to pinpoint. More than a quarter of workers participate in independent contracting in some form, and about 10 percent of workers rely on it for their primary income. For small business owners, this adds up to many opportunities to round out staff, manage business surges, and leverage expertise for specific situations.
It’s easy to find and hire an independent contractor. Think of the process as two distinct phases:
Phase 1: Defining your needs and finding resources.
Phase 2: Completing the required paperwork and other processing.
Phase 1: Defining Your Needs and Finding a Resource.
Define the Scope of Work.
The first step is to determine the work you want to be done by the contractor. This thinking creates a scope of work and helps clarify what you’d like to have completed, outlines the timeframe, and estimates the number of hours needed to complete the project. Be sure to include things like:
Primary responsibilities (e.g. draft Facebook ad copy).
Any follow-ups (e.g. make two rounds of edits).
What the final product looks like (e.g. Ads posted on our Facebook feed three times in 30 days).
Verify an Independent Contractor is the Right Fit.
Once you assess the scope of work, make sure that an independent contractor is the right fit for your needs. Any person or business you hire to do work on your behalf, but not as an employee, is an independent contractor. As a rule of thumb:
You pay independent contractors for the result of their work. You don’t have control over how, when, or where they do the job.
You pay employees for the result of the work and the ability to control how the job is done.
Usually, independent contractors are in a different business than your own. For example, freelancers, like artists, editors, and writers, are often independent contractors. Independent contractors can also include outside companies doing work for you on an ongoing basis. Think of a cleaning service, an attorney, or a tax prep person. The Internal Revenue Service (IRS) has set guidelines for determining if someone is an employee or an independent contractor.
Find the Right Resource.
With your scope of work in mind and your decision to hire an independent contractor, it’s time to find the right person for your needs. Using a niche platform like HireMyMom.com is a great way to source qualified candidates specifically looking for remote or contract work. You can save time and money by turning to a site dedicated to connecting driven professionals with small businesses. (Note: At Hire My Mom, our professionals are independent and not employed by Hire My Mom. We do not charge any commissions to the job seeker or employer.)
Phase 2: Paperwork and Processing.
Once you’ve identified a contractor and agreed on a scope of work, there are a few more steps to complete before the two of you get to work.
Collect the Right Forms.
Collecting the correct forms from independent contractors is an often overlooked step that offers essential benefits for your business and the contractor you are hiring. Securing the proper documents at the beginning of your relationship can set you up for greater success in the future. Collecting the forms early gives you peace of mind that you’ve checked all the boxes with your independent contractor. According to The Balance Small Business, there are several forms to collect and keep on file:
A completed W-9 tax form. This form and directions to complete it are available online at irs.gov and should be on file before paying the contractor. Once you collect the W-9 Form, hold on to it for your files if you need to share it with an auditor. (You don’t need to send it to the IRS.)
When you hire an independent contractor, you aren’t required to withhold federal or state taxes or Social Security and Medicare taxes (collectively known as payroll taxes) from their pay. Independent contractors are self-employed/owners of their own business and are responsible for reporting their income and paying the associated taxes. (You can learn more from irs.gov.)
While you don’t need to withhold payroll taxes from an independent contractor, you are responsible for issuing them at 1099-NEC Form for Non-Employee Compensation at the end of each calendar year.
Independent contractors use the 1099-NEC Form to report their business income to the IRS.
A contract. When you start a new relationship with an independent contractor, establish the terms of your engagement with a written agreement. The contact should:
Outline that the person you are hiring is an independent contractor and not an employee. The person you are hiring should understand that you will not be withholding payroll taxes because he/she is not an employee.
Stipulate who owns the finished work product. (This is especially important for creative services such as artwork or design.)
- Outline the scope of work to be performed.
Document billing rates, invoicing, payment processing, and timing. Settling on this at the beginning of the project can make for a more productive relationship.
A resume and reference information. You know why you hired this person to do work on your behalf, but keeping a resume and reference information on file makes it easier for others to review if needed. You may even have your contractors complete an application so you can easily access pertinent information about them in the future.
Additional Forms to Consider.
According to The Balance Small Business, your business may dictate the need for additional forms in addition to the items outlined above. For example:
A non-disclosure agreement (NDA). Sometimes called a confidentiality agreement, this gives you confidence that your independent contractor is not sharing your business plans or trade secrets with competitors or other businesses.
A non-compete agreement puts restrictions on the contractor’s ability to take your customers or clients to a competitor. These documents tend to outline specific actions and timeframes where the conditions apply.
A non-solicitation agreement keeps an independent contractor from working for your competition while also doing work for you. This can be tricky because sometimes you want a contractor with expertise in your industry, which means he/she also works for other similar businesses.
Consult a lawyer if you are considering asking your contractor to sign any of these items. State laws vary considerably. Working with an attorney can help ensure that any steps you’re considering are legal and advisable based on your state, objectives, and situation.
Start a File for Each Contractor.
Once work begins, create a file for each independent contractor that includes all pre-employment forms, project overviews and feedback you share, and contact information. Having this file will make future engagements easier and lets you quickly pull information if you are ever audited.
Bring in a Pro to Answer Any Questions.
Issues around employment status and taxes can be thorny. The IRS offers some guidelines for making this determination. An attorney or accountant can help with specific questions or advice when hiring people or businesses to work on your behalf.
Lesley Pyle is the founder of HireMyMom.com, a boutique service connecting Small Businesses with Virtual Professionals across the country. She began her work-at-home career in 1996 with the launch of her first website: Home-Based Working Moms. Pyle was named one of “50 Women Entrepreneurs Who Inspire Us” by Self-Made magazine and has been featured in numerous publications including Forbes, Entrepreneur, Wall Street Journal, USA Today and many others. Follow Lesley on LinkedIn, Twitter and FB.