One of the challenges a business may face is hiring an independent contractor to complete a job which does not require a full-time employee. Examples of this include website design, blog content providers or software design engineers. In these cases, a company may need specific expertise for a short period of time to complete a single task. This means managers need to deal with how to assign work and oversee the work of a non-employee without running afoul of labor laws.
Independent contractor versus employee
The Internal Revenue Service (IRS) takes a dim view of employers who treat employees like independent contractors. Businesses can face serious fines if they cross these lines and could potentially owe back payroll taxes and penalties if this line is crossed. There are three basic tests used to determine if a person is classified as an independent contractor:
- Who is in control? – In the case of an independent contractor, the control of what and how the job is done is with the contractor and not the company. If the company is controlling what the job is and how that job is completed, the person is probably an employee.
- Who controls finances? – Independent contractors typically provide the tools they need for the work at hand, have unreimbursed expenses and have monies at risk (i.e., non-payment on an assignment). An employee, on the other hand, has all of the tools necessary to getting their job done provided by their employer.
- What is the relationship? – In the case of an independent contractor, most companies hire someone with a specific time frame to complete a specific task. Independent contractors often have no employee-like benefits such as insurance or pension plans.
How does managing a freelancer work?
For most managers, finding the balance between treating an independent contractor as an employee and still getting the work they expect is a bit of a fine line. One must provide specifics about the project and what their expectations are without micromanaging.
In general, a manager may communicate the specifics of a project and provide a deadline for completion. However, beyond this, they may not dictate what hours a contractor should work on their project nor may they insist the contractor be at the location of the company (with limited exceptions) during the completion of the project. In fact, to avoid any improprieties, the less direct management between a manager and a freelancer, the better.
Contracts can help
Companies who use freelancers on a regular basis should consider drawing up a specific set of guidelines for tasks to be completed. While it is helpful to be in regular contact with a freelancer during a project, it is important to ensure the company is not providing too much oversight. In most cases, it is helpful to have a specific contract with a start and end date so there is no mistaking the relationship between the company and the independent contractor. Additional contracts may be signed should there be additional projects needing the freelancer's expertise.
The use of independent contractors can be beneficial to a company regardless of their size. However, it is crucially important to understand the difference between employees and independent contractors. Crossing the line between the two could be very costly.