Require Documentation When You Hire Independent Contractors
Ask independent contractors to fill out a questionnaire and provide documents to prove that they are really self-employed.
If you hire independent contractors (ICs), you must be vigilant to ensure that government agencies never reclassify them as employees -- which could subject you to back taxes and penalties. That vigilance must begin even before an IC walks in the door. If you plan to hire an IC, here are two things you can do to make sure you get the relationship off on the right foot.
Independent Contractor Questionnaire
When you meet with a prospective IC for the first time, you should have the IC complete an independent contractor questionnaire. You should design this questionnaire to elicit the sort of information that will establish that the IC is a separate business entity, not merely an employee in IC's clothing. Here is some information you'll want to know:
- whether the IC has a fictitious or assumed business name
- how the IC's business is structured (as a sole proprietorship, partnership, corporation, or limited liability company, for example)
- the IC's business address and phone number
- the number of people employed by the IC, if any
- any professional or business licenses the IC holds
- contact information for other companies for whom the IC has worked as an independent contractor
- how the IC markets his or her business (for example, Yellow Pages, advertising)
- whether the IC has an office separate from his or her home
- a description of the business equipment and facilities that the IC owns
- whether the IC has business cards, professional stationery, and invoice forms, and
- a list of all of the types of insurance that the IC carries.
None of the answers to these questions will provide conclusive evidence that a worker is an employee or an IC. But taken together, this information will help you decide whether the worker is an independent businessperson whom you can safely treat as an IC.
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