Declaration of Independents

Status Seekers

Since the IRS generally prefers to assume everyone is an employee, it's harder to ensure a worker's status as an independent contractor. Satuloff suggests some things you can do to shore up someone's independent status:

1. Document the relationship with a contract. "This can be a simple agreement that spells out the duties of the independent contractor," he says. The agreement should also state that the independent contractor, not the employer, is responsible for withholding any necessary taxes.

2. Have the independent contractor submit invoices. "Time sheets and subsequent invoices go a long way in substantiating a contractual relationship," Satuloff says.

3. File a Form 1099 at year-end. By law, you are required to file and give someone a Form 1099 if you pay him or her more than $600 a year.

Classification issues are complicated, but don't let them get the best of you. Remember, tax considerations are just that; they should be a factor in your decision, not the sole reason you make it. When it comes to hiring, the most important consideration is getting the best person for the job.

Nancy L. Scarlato contributed to this article.

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This article was originally published in the February 1996 print edition of Entrepreneur with the headline: Declaration of Independents.

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