Independent contractors allow companies to outsource work without the risk of investing the time and resources they would for an employee. The use of independent contractors continues to rise as businesses respond to health insurance mandates, a changing economy, and growing compensation demands. Independent contractors do not require overhead costs, overtime pay, workers’ compensation insurance, vacation pay, unemployment insurance, or payroll taxes.
It is imperative to implement a written contract between the Company and the independent contractor. The contract should clearly state the nature of the independent relationship between the parties and expectations for completion of the project. Also, having a written contract allows for customization for each Independent Contractor the Company retains.
Customizable contracts protect the Company by:
• Defining the parameters and expectations for all parties involved. • Defining the nature of the business relationship • Form agreements hold little credence in a misclassification lawsuit. • Customization provides opportunities for the addition of specific provisions.
Write Independent Contractor’s Agreements with the intention that the Internal Revenue Service (IRS) or an associated agency may be reviewing the contract for classification purposes. Writing an Independent Contractor’s Agreement with this view in mind provides an asset in the event of a dispute or misclassification challenge
Writing an Independent Contractor’s Agreement to meet the standards of a particular test or means of measure is ill-advised. An Independent Contractor’s Agreement should reflect a business relationship, where each party is on equal footing. Most importantly, companies need to consider the element of control. The higher the degree of control exerted by the Company over an Independent Contractor results in a decreased chance to defend successfully against a misclassification challenge. The IRS considers the amount of control the Company exerts over Independent Contractor’s to be a critical element in their decision process.