INDEPENDENT CONTRACTORS
HIRING Independent Contractors
BY NICOLE GARZA
BY : NICOLE GARZA , AINS , CLCS BUSINESS RISK ADVISOR , GENERAL INSURANCE SERVICES
As any business grows , employers are faced with challenges in the hiring process . Is there a need for more employees with all the payroll requirements such as taxes and benefits , or should the increased workload be assigned to independent contractors ? As a Business Risk Advisor working with small businesses , I realize that proper classification of “ independent contractor ” versus “ employee ” can sometimes seem ambiguous , so it is a good idea to ask yourself these five questions before hiring :
1 . Is the person driving a personally owned vehicle or a company vehicle ? If a company vehicle is being used , you are dealing with an employee , not an independent contractor .
2 . How is this person being paid ? An independent contractor would be paid only when the job is done . An employee , on the other hand , would be paid regularly : weekly , or biweekly , or whatever the company policy is .
3 . Who is in charge ? If the business owner is giving instructions on what is to be done and how to do it , they are dealing with an employee , not an independent contractor , who basically runs their own show .
4 . Who orders and provides the materials to complete the project ? If the employer does this , again , they are dealing with an employee .
5 . Who provides the training for this person ? If the business owner looks after the training for this person , they have an employee as independent contractors look after their own training .
Business owners have taxation responsibilities and must , at the end of each year , issue the contractor a Form 1099 if they have earned $ 600 or more . They then submit a Form 1096 to the IRS to justify the payments made to the contractor . This can seriously affect payroll costs and taxes if the owner is not careful in the “ employee ” or “ independent contractor ” designation . To be more accurate and more financially responsible in this regard , business owners should educate themselves in the specifics of each term .
The key to the independent contractor designation is , indeed , the word “ independent .” Independent contractors are responsible for their own vehicle , training , insurance , and employees , with no dependence on the business owner . If an insurance claim is made and the independent contractor is not providing insurance coverage as they should be , the business owner could be held responsible . If the business owner is not properly insured and does not require a certificate of insurance proving coverage by the independent contractor , the owner could face significant financial repercussions .
A great example of this is the annual audit . Every year , insurance carriers perform an audit for General Liability and for Workers ’ Compensation to ensure that insureds only pay what is owed based on sales and / or payroll . If workers are classified incorrectly or if
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