Every business leader knows that hiring independent contractors has many benefits. Among the many perks are being able to outsource tasks, engage workers only when needed, end engagement whenever it makes sense, have less onboarding hassle, and avoid paying for benefits. It makes sense why engaging independent contractors is often to a company’s advantage, but only when it’s done in accordance with IRS guidelines. Here’s what you need to know to stay out of trouble.
An Ounce of Prevention
Classifying workers correctly from the outset is the best way to prevent problems and unwanted interactions with the IRS since a worker’s classification guides what benefits they’re entitled to by law. No matter what size your business is, the IRS is paying attention. Legal disputes over worker classification have plagued everyone from Fortune 500 companies to small businesses. Following the rules and classifying correctly from the beginning saves time as well as the potential for legal troubles.
Be Ready to Adapt
From workers to legislators, people are thinking about how to manage the evolving employment landscape. We can only guess how things will change, but we do expect them to change. Some envision an entirely new system with changing guidelines that suit changing times. Such a system might include “portable benefits” that travel with workers from company to company.
Whatever happens, businesses that stay in tune with legal considerations are in position to adapt as those changes come. When that’s not something a company can accommodate internally, engaging a third party to handle those details makes sense.
Protect Yourself
There are some basic ways to protect yourself should the IRS ever come knocking. The world of independent contractors offers benefits to workers and companies alike. While those benefits do include flexibility for workers and lower costs to employers, they don’t cover things we’ve grown used to such as built-in 401K plans, health insurance options, and worker’s compensation. For many independent contractors, that’s a problem. Understanding expectations helps protect everyone. It’s always good business to create a contract with an independent contractor. It’s not just good for businesses. Making sure everyone knows the expectations is good for employees, too.
The Bottom Line
Currently, there is no roadmap that guides businesses to pay contractors fairly while keeping costs down. The good news is that at PayReel, our sister company, we have been on this road long enough to navigate it legally and ethically. If you can’t (or just don’t want to) keep up with the rules and developments, PayReel can keep up for you. Check out this handy guide to see if you might benefit from having a third party handle these details for you. Our PayReel team manages worker classification, payroll, and payroll taxes. In addition, as the employer of record, we even take on all risks associated with a variable workforce.
Going above and beyond in the ethics department isn’t just a warm and fuzzy notion. It’s a sound business decision, too.
