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The AR Group

Top Five Tips for Utilizing Independent Contractors

By Christine Wilkinson

Many employers utilize independent contractors as a cost-saving method to gain a valuable resource, but avoid the concomitant costs of an employee.? But be wary…while it can be a great relationship for both parties, you must follow these crucial tips:

1. Put it in writing
The absolute worst thing an employer can do is not have a written contract with its independent contractors. The regulatory bodies governing taxes, labor and employment, and insurance want you to have a written contract stating that your independent contractor is not an employee, and is not entitled to tax withholding, benefits, etc. Your company will almost assuredly lose in any dispute without such a contract. A contract is not a guarantee that you will win in a dispute; but without a written contract, it is fairly certain you will lose one.

2. Treating Similar Workers Similarly
It is perfectly legal for a business to employ both employees and independent contractors. But it is not advisable to have a contractor selling toothbrushes on an independent contractor basis and another similarly situated worker doing the same thing as an employee. Why? Because there are many unscrupulous employers who utilize independent contractors for the same jobs that their employees do just to avoid paying payroll and other employment taxes.? The risk is enormous: the IRS, the Department of Revenue, the Department of Labor or other authorities may re-classify your independent contractor into an employee, which would make your company liable for back taxes and fines.

3. Let the Contractor Choose His or Her Hours
A classic example of being an employee is punching a time clock ? figuratively or literally. Independent contractors, however, should be paid for the result, not as the work is being performed. ?Yes, you can tell the plumber you have hired that he cannot re-plumb your shower at midnight. ?But permitting workers to complete the work on their own schedule, while meeting your deadlines, increases the likelihood that they will be considered independent contractors.

4. Let the Contractor Work Elsewhere
Requiring your contractors to work exclusively for you, and prohibiting them from working for other companies while working as your independent contractor, may not in and of itself result in an employee characterization, but it will not help your case.? ?Restricting competition is a tell-tale sign of an employer-employee relationship. For that reason, it pays to focus on a target result, such as having a project completed on the 15th of the month, rather than wherever else the independent contractor is working. If you are concerned with intellectual property or other trade secrets, consider entering into an agreement with the independent contractor to restrict his use of that information.

5. Let Go
The level of control that an employer exerts over an independent contractor is one of the most important factors in determining a worker?s classification. You have the right to control not only what an employee does, but how it is done.? With independent contractors, you can direct only the result of the work done, and not the means and methods of how they accomplish the result.

SMART TIP: If the contractor?s work involves the creation of art, written work, computer programs or other creative works, make sure the agreement addresses who owns the copyright to the work ? the employer or the contractor ? to avoid lawsuits later.