HOUSTON BUSINESS REVIEW

CYA: HIRING INDEPENDENT CONTRACTORS
By Shahara Wright

Shahara D. Wright, Business Law Attorney, "Serving businesses from start-up through expansion". You can cantact her by: calling her at (281) 980-2040, sending her an e-mail or visiting her website. For more information concerning Shahara Wright click here

. These days, many small businesses and not so small businesses use independent contractors. Usually this is done to save on employment taxes as well as not having the responsibility of a full time employee. An independent contractor is one who contracts to do a piece of work according to his own methods and is subject to his client’s control only as to end product or final result of his work. An independent contractor is a person who contracts with another to do something but who is not controlled by the other or subject to the other's right to control with respect to his physical conduct in the performance of the undertaking.

When hiring an independent contractor you must determine what type of help you need and the specific skill level of this individual or company. When hiring a company things are a little easier because both parties understand that this is a temporary relationship. This means that at some identified point the job will come to an end; or that the parties understand that there is one specific task that company in hired to do. With individual’s things are more complicated, mainly because the hiring business does not make the relationship clear. Also, hiring businesses fail to provide the proper documentation and take the necessary precautions to prevent confusion. Neither the IRS nor the Texas Workforce Commission (TWC) recognize “contract workers,” only “independent contractors.” The IRS actually has twenty-part test to determine if someone is an employee or an independent contractor.

It is imperative that you actually have a written contract with your independent contractor. The contract must set out the service of the contractor and the terms of the agreement. This agreement should be for a certain amount of time. Do not make it indefinite. It should clearly identify the services of the individual and the purpose for which he or she is being hired. If this is an individual that you are contracting with, you must specify that this person is an independent contractor and that the business will not pay taxes on the contractor’s behalf.

I once had a client that came to my office who owned a janitorial service. She had “contract workers’ that she often referred to as “employees.” She often had her workers go from one job to another, building to building, paying only for the time that they actually cleaned. One worker who was released from duty was upset by this and filed for unemployment. TWC found that this worker was an “employee” and was entitled to unemployment. The IRS became involved and found that the business should have paid employment taxes on this worker and charged the business for past taxes plus penalties and interest. If that was not enough, the U.S. Department of Labor became involved and found that the business (now deemed employer) did not pay proper wages in accordance with the federal laws and ordered the business to pay overtime to all employees who had worked during a one year period.

Nothing in this article is intended as legal advice and you should consult an attorney before making any decisions.