First Step Marketing

If you can’t find exactly the kind of employee you want, you may decide to farm the work out on a contract basis, either to a business or an individual who freelances or moonlights for extra income.

The advantage of using independent contractors is that when times are tight employment-wise, you don’t need to look far for help. The biggest plus, however, is that the two of you agree on a fee for the project, the contractor performs the work, you pay her, and that is the end of your commitment, unless you provide her with more work. This means that you are not responsible for calculating tax and insurance deductions from her paycheck or for sending them to the appropriate governmental agencies. As an independent contractor, she is responsible for figuring and paying her own taxes. This can save you a mountain of paperwork and a lot of time. You’ll probably pay a little more to an independent contractor on a per- hour or per-project basis, but you’ll save that and more in the time you’ll spend on paperwork if the contractor was your employee.

If you pay an independent contractor more than $600 over the course of a tax year, you’ll have to prepare and file a tax form known as a 1099, where you detail the exact amount of money paid out, along with the contractor’s name, address, and Social Security number. When you do the taxes for your business, you’ll then have to send a copy of each 1099 along with a Form 1096, listing the total amount your business paid to independent contractors.

The Internal Revenue Service has tightened up its definition of when an individual performing work for a business is an employee and when he is an independent contractor. If you have any doubts or questions, contact your accountant or the Internal Revenue Service to clarify whether an individual performing work for your business is in fact an employee or an independent contractor, and exactly what your tax responsibilities are.

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Using Independent Contractors

This entry was posted on Monday, November 3rd, 2008 at 3:14 am and is filed under Business Management, Jobs, Tax. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.