How Do I Hire an Independent Contractor? 5 FAQs

April 19, 2019
How Do I Hire an Independent Contractor? 5 FAQs

Has your company thought about hiring a third-party contractor to help with your workflow? The definitions of independent contractors are changing, depending on where you're located, but after understanding the regulations around contract workers, the process is not difficult.

Whether it’s to take over emergent tasks or because you need a specialist to perform a particular task, there are many great reasons to hire an independent contractor. Below is the breakdown of how to hire an independent contractor.

How to hire a 1099 Independent Contractor

Once you’ve found a fantastic contractor, you need to seal your pact on paper. Since ICs are businesses in their own right, they (not you) are responsible for paying their own federal, state, social security, and Medicare taxes, unlike internal (W-2) employees. So setting up the proper paperwork upfront is a must. To hire a contractor, you must utilize the forms W-9, 1099 MISC, and a written contract. There's more in-depth information on contractor forms below.

Do I need an EIN to hire an independent contractor?

Yes, you will need to get the EIN (Employer Identification Number) for your contractor’s business. If they provide individual services, a social security number will suffice. Establishing their tax-status at the start of your business relationship is a vital part of how to hire a professional contractor. If you don’t have a valid W-9 with this information, then the IRS will assume that they are an internal employee and you may be saddled with additional taxes, fees, and legal liabilities.

What forms are needed to hire an independent contractor?

When thinking about how to hire a professional contractor, there are three important documents that must be collected: a valid Form W-9 containing the TIN (Taxpayer Identification Number) for the contractor(s) in question, a copy of their resume in the event of an audit, and a dated and signed contract between both parties. The contract should contain details about the scope and limitations of the business relationship, NDAs and confidentiality clauses, pay rates, and reasons for termination.

You will also need to keep track of payments and provide each contractor with a Form 1099-MISC every January if the payment sum exceeds $600 per year. This is followed up with Form 1096, which must be sent to the Social Security Administration (along with copies of your 1099 forms) by the end of February of the following year.

Does it matter where I’m located?

Yes and no. Regardless of where you're located, you should have access to contractors, local or further away. However, the definition of an independent contractor can vary based on the state they're hired in. You should always get concrete proof of a person’s contractor status, valid tax numbers, and hold a binding contract to protect yourself from foreign litigation. Beyond that, you should look at your local and state laws to ensure you're in compliance with them.

The lines get a little blurry if a foreign contractor provides you services within the U.S., so pay special attention to employment provisions, country treaties, totals earned, and length of stays. In some cases, you or an intermediary (such as agencies or online freelance marketplaces) may be responsible for reporting and withholding income tax for foreign contractors.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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