Finance U

Indie Label

Thinking independent contractors instead of employees? No withholding taxes; no workers' compensation; no employee benefits . . . .

Wake up and smell the IRS. You can't call workers independent contractors unless they're self-employed and control their own work. How much control? Lots. You can't dictate working hours, where work is done or by whom. The IRS may ask:

  • Is compensation based on hours worked?
  • Do you provide tools and equipment?
  • Is the worker free to serve other businesses?
  • Must your instructions on how to do the work be obeyed?
  • Is the worker protected from being terminated at will?

    If any answers are "yes," you may have an employee on your hands. Seek legal advice if in doubt.

Even if you're dealing with an independent contractor, protect yourself. Draft agreements spelling out your relationship with each independent contractor. File each agreement along with the worker's business card, licenses, advertising copy and other substantiating documents. Include names of his or her other customers, professional affiliations and insurance companies.

Contact Source

Online Banking Report,

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This article was originally published in the January 1999 print edition of Entrepreneur with the headline: Finance U.

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