For business in certain industries such as high tech, it is often common to hire people as independent contractors rather than as employees. In some cases, it’s because they’re hiring them for a short period of time of just to complete a contract requirement. For others, it’s a way to simplify paperwork.
This is common in many industries. From tech to healthcare, many businesses believe it is easier to hire someone as an independent contractor instead of handling all the paperwork and requirements involved in hiring an employee. If you’re unsure whether to hire someone as an independent contractor or as an employee, start by asking yourself the following questions:
- Who sets the hours? Contractors generally work when it’s convenient rather than having fixed hours. Even if they’re working on your project full time until it’s complete, they have the ability to flex when they come in rather than being in-house every day from 9 to 5. You can still have team meetings at fixed times and expect them to attend, but it you want someone in the office full time at certain hours, they’re likely an employee.
- Who sets how the work is done? Contractors often bring unique skills and expertise that they apply to your project. While some oversight and collaboration is always necessary, if you’re managing every step of what they do, it’s less of a contractor relationship.
- Where do they work? Contractors often work from home or their own offices, coming into your office only when necessary. While in some cases they may need to be present to access equipment, this is one of those grey areas between contractor and employee and a great aspect to discuss with your attorney.
- Do they bring their own tools? While you may have to provide access to your system and any specialized databases, most contractors are expected to bring their tools with them. In many cases, this is the difference between a company-issued computer versus a private computer.
- Are they allowed to work for others? Contractors, by definition, are allowed to perform their trade for others, often at the same time they’re working for you. While you can have them sign a non-disclosure agreement to keep them from taking your company secrets and a non-compete limiting their ability to work for direct competitors, you can’t limit their ability to work to the point that they can’t work for others at all.
- How is the person paid? Contractors will submit invoices based on hours worked or performance milestones. They do not expect to be paid automatically, nor do they expect you to withhold taxes.
If you need help determining whether someone is best categorized and paid as an independent contractor or employee, drafting an appropriate independent contractor agreement, or handling a compliance audit, reach out to the experienced business attorneys at Virtus Law Firm. Call us at 612.888.1000 or email us at info@virtuslaw.com. We can help you hire people the right way and properly document these hires to avoid costly mistakes and future liability.