The IRS rules for hiring independent contractor are pretty clear: the contractor must have complete independence from the company hiring them to do the work. However, in the wedding industry, we tend to see a lot of people not full understand what this ‘independence’ thing means.
Here are 6 signs that your freelancers should be classified as an employee (NOT a 1099 independent contractor):
- You don’t have a contract with them.
You must have a contract with your contractor. Otherwise, you won’t be able to prove that they were hired to do a specific job for you. (Law for Creatives* offers professional templates for working with independent contractors.)
- You have them fill out timesheets.
An independent contractor should be controlling their prices and their income. Therefore, they should be invoicing YOU. (You are an independent contractor to your brides/grooms. You wouldn’t have them deciding when to pay you and how much.)
- You have an open-ended and/or long-term agreement with them for work.
A company hiring an independent contractor is hiring that person for a specific job or project. That job, as defined by the contract, has a finite end date. Having contractors for extended periods of time shows that you are reliant on that person to accomplish operations withIN your business. This reliance is contrary to the independence requirement of classifying contractors.
- They have a company email address for YOUR company.
Contractors should NOT have an email address with your business. If they are independent, they will operate under their own email address, which you will have no control over.
- You have them follow company protocol very closely.
If you share your employee handbook with them and expect them to follow it, then they are employees, not contractors. You can hire a contractor to embrace/mirror your company values. BUT, you cannot dictate to them how they will work.
- You prohibit them from working for a competitor.
Contractors can and should have a multitude of clients for which they do work. (You would never tell a graphic designer that they cannot design a website for your competitor.) If you prohibit them from working for a competitor, then they should be classified as employees.
Contractors are independent from your company. It’s even better, in the eyes of the IRS, if they have their own business. Thinking of contractors as separate businesses will help you define your relationship with them.
For example: Contractor Inc. has been hired to do A, B, C for your company from June through September. They will invoice you monthly. You have a contract that specifies the terms of the work they have agreed to do for your business.
Beware: the IRS may audit your business. If they decide that you have misclassified a worker as an independent contractor, then you could have penalties and employee back taxes due.
Need more help with contractors and employees? Check out The People Plan.