For many small businesses, the most daunting aspect of hiring independent contractors is the paperwork; it can seem confusing and time-consuming. To make the process less intimidating, just think of it as saying hello, inviting someone in, and saying goodbye. With each of these steps, there’s a small amount of administration—but nothing you can’t handle, chief.
A w9 provides a small—but legally necessary—amount of information about a contractor. The most vital information is the contractor’s name, mailing address, and tax ID number (often a social security number if it’s an individual rather than a corporation). They’re used to giving them out, so don’t hesitate to ask any potential contractor for a w9. If they need a blank one, tell them about this thing called the Internet. It’s wondrous.
Come On In: IC Contract
If you’re savvy, you’ll use a short-term contract (after all, you’re hiring a “contractor”) with each worker-for-hire you use. These contracts can vary, but brevity is important. An overly wordy contract can not only make you look paranoid, but it can also scare away people who would normally want to work with you. So keep it simple.
In this case, you’ll use an Independent Contractor Contract, or an “IC contract.” They’re also known as “work-for-hire contracts.” This paperwork just outlines what tasks will be done by whom, how compensation will be handled, and what is expected of each party. There are many good templates online, but don’t simply cut and paste. Take the time to review any IC contract you’re considering using, and cater it to apply to your particular scenario. Certain touchstones span across entire industries, and should be in every IC contract.
In addition to rate (how much compensation the contractor receives per hour, or day), your IC Contract should also specify that the hired contractor be the one doing the work rather than a stand-in. This way, if your contractor agrees to work for you during a period of time but gets a better offer elsewhere, he or she can’t simply send a substitute unless you specifically permit it.
Another caveat is confidentiality. Make sure that anything business-related that this person sees, hears, overhears, reads, or contributes is protected from being repeated or explained to outsiders.
Finally, after each year, you will need to have your accountant or payroll company issue a 1099 to every contractor to whom you paid more than six hundred dollars. 1099s must be sent out by January 31st, so it’s important that, each January, you give your accountant a 1099 report with enough notice that he or she can generate the 1099s and mail them in time.
A 1099 report is simply a list. The list contains the name of every contractor who was paid by you throughout the previous year. It also contains the contractor’s address (for mailing the 1099 report), tax ID number, and amount earned during said year. As mentioned before, you must only provide 1099s to contractors to whom you paid more than six hundred dollars. Remember, the 1099 should only list the amount paid for services or rentals; reimbursements (paying someone back for out-of-pocket expenses, including for mileage) do not count, and should not be included.
Finally, keep all of this paperwork secure. If it’s on a computer, password-protect it. If it’s in an email, delete it after you’ve gleaned the necessary information. If it’s in a file cabinet, make sure it stays locked. An identity thief could do a lot of damage with a w9, since it often lists a person’s social security number, name, and address.
With the “hello, come on in, and goodbye” approach, you can remain confident—not to mention legally compliant—while hiring contractors to do your bidding; like, say, finish that bronze statue of you.