Hiring an independent contractor is a great way to get a temporary or occasional job done when your staff doesn’t have the time or expertise to do a specific job. Here’s what you need to know about hiring independent contractors.
Why Hire Independent Contractors
Independent contractors are great when you need a specific, but often not permanent or daily, job to be done. Hiring independent contractors can save your company time and money by having skilled professionals on hand to analyze problems and find quick solutions. It also helps by keeping projects that are unrelated to your staff’s core duties off their proverbial desk. No need to pull a vital employee from their normal job to have them try and perform a task they are not familiar or comfortable with, or in some cases qualified for.
This also allows you to pay an individual for their services without having to add the financial and resource burden of another employee.
Pros and Cons of Hiring Independent Contractors
Like with anything, there are pros and cons to hiring independent contractors for your business.
Pros:
- You’ll likely save money: Though you’ll be paying more per hour with an independent contractor, you don’t have to pay a number of expenses associated with hiring an employee, like Social Security tax, Medicare tax, unemployment compensation, worker’s compensation, etc.
- It’s more flexible: Hiring and letting go of staff members is hard. With independent contractors, you can feasibly hire double (or half) the contractors on a day-to-day or job-to-job basis, without the attachment issues and repercussions.
Cons:
- You have less control: Since an independent contractor is just that, independent, you don’t have as much say in how and when things get done.
- Your workers are more apt to come and go: You trade consistency for efficiency – you may not know which person will show up on a given day to work on a project.
For more pros and cons of hiring an independent contractor, check out this article from Nolo.
Tax Forms You Need to Hire Independent Contractors
When you hire independent contractors, you have to use different tax forms too. Here’s what you need.
The first thing you need (aside from the written contract, quote, or other agreement between you and the IC outlining the work and pay expectations) is Form W-9. This should be requested from any and all freelancers or independent contractors you work with before the work begins.
After that, your business is responsible for filing a Form 1099-NEC (non-employee compensation) for every independent contractor you work with. Previously, the 1099-MISC was used to report freelance and independent contractor expenses, but as of the tax year 2020, the 1099-NEC is the one you need. For more resources regarding the 1099-NEC, what it is, how to file, how to make corrections, and more, visit our blog.
Hire eFile360 to Help with 1099 Filing
Hiring independent contractors is growing in popularity – especially in this uncertain economy. It’s worth a high-level analysis to help you decide whether an employee or an independent contractor is the right person for the job you need done. To see which forms 3file360 can help you with, click here.
Sign up for a free eFile360 account to making your electric filing process easy and check our blog often for more helpful tax tips!