Running a small business can be a fantastic way to make sure you keep operations small and meet your client needs at the lowest cost to you and the client. This can be achieved through many different ways, with one being keeping personnel costs down. A small business owner can seek to keep costs down by hiring fewer employees and relying largely on independent contractors. However, this approach can be wrought with legal pitfalls for the small business owners who are not careful in how they deal with independent contractors.
One of the attractive aspects of an independent contractor to a small business is the fact that generally the business does not have to offer a benefits package, or pay income tax, Social Security, Medicare, and unemployment taxes on behalf of the independent contractor. However, improper classification of an employee as an independent contractor could lead to an IRS audit or a lawsuit from the misclassified employee. In both cases, the business stands to lose a lot of money, whether paying back taxes, fines, and judgments, or in defending a lawsuit.
Determining if a Person is an Independent Contractor
Independent contractor status is determined through a look at what the person classified as an independent contractor does for the business, the control the business has over the person, and other similar considerations. Florida law provides some common law factors that may be considered when making the determination; these factors are similar to those considered by the Internal Revenue Service. For example, a person is more likely to be considered an independent contractor if the person controls the hours worked, provides their own tools, and by what kind of agreements the business has with the person. Additionally, where the business controls the subcontractors the independent contractor may hire, the relationship begins to look more like that of an employee and employer. As the Internal Revenue Service points out, there is not exact method of determining independent contractor status without considering multiple factors and the entire working relationship with the person.
The Internal Revenue Service website provides publications and a video guide to help in the general understanding of the proper classification of independent contractors. A business owner may also file Internal Revenue Service Form SS-8 seeking an official determination on an independent contractor’s status.
Contracting Language
In considering what kind of a contract or agreement to put together in order to contract with an independent contractor, a business should remember to protect itself. This means including certain nondisclosure language in the contract, contracting to keep any intellectual property produced as business property, and contracting to keep the independent contractor from trying to recruit the business’ clients. Care should be taken in crafting these contracts or agreements to make sure that the business does not end up creating ambiguity as to the independent contractor’s status due to including too many restrictions.
Contact a Business Law Attorney
If you are a small business owner considering hiring an independent contractor, consult an experienced business law attorney to ensure that you have a solid agreement in place to protect your business. Contact a North Miami business law attorney at the Charlip Law Group L.C. for a consultation today.
