The Freelancers' Blog

3 Ways to Protect Your Business When Working with Independent Contractors

May 7, 2021 11:13:40 AM / by SoleVenture

If you’re like the majority of businesses, you engage at least one independent contractor every year. Increasingly, companies and small businesses are relying more on independent contractors to provide outsourced resources like marketing, sales, technology, accounting, and a host of other work functions. It’s a great way to reduce your overhead, select the best talent for discrete projects, and remain focused on your core business proposition.

Unfortunately, businesses that regularly engage independent contractors also run the costly risk of an audit from the IRS or the Department of Labor. Here’s how you can retain your workplace flexibility and protect your business when working with independent contractors:

  1. Ensure your contractors are doing business through a legal business entity. Independent contractors are self-employed workers. At the very least, they need an EIN; however, your business will have even greater protection if the contractor is operating under a limited liability company because their business will generally be responsible for their work.
    • Hot tip: Incorporation and annual reporting averages around $200 per year. That can be steep for the average worker. If you find that a contractor is not performing work for you through a legal business entity, you can offer to advance the cost or roll the cost into their compensation.
  2. Make tax payments easy for your contractors. Taxes are the number one reason why the government cares about independent contractors. Someone has to pay Uncle Sam. Your business may be audited simply because you have the deeper pockets. Since your business isn’t making deductions from your contractors’ pay, the contractors you use will have to pay self-employment taxes. Offer your contractors a tool, like the SoleVenture mobile app, to track their quarterly tax payments.
  3. Make sure your workers are properly classified. Assess your workforce and how you are using your contractors. Make sure you aren’t paying individuals as contractors who should be classified as employees. Some of the factors the IRS and other agencies may use in making this determination may indicate that the worker is an employee, while other factors can indicate that the worker is a contractor. There is no specific number of factors that automatically make a worker a contractor versus an employee. SoleVenture helps business assess their workforce classifications and save money by making sure your workers are classified appropriately,

SoleVenture can help you protect your business and keep you working with talented freelancers. Contact us today.

Written by SoleVenture