What is a Business Owner's Relationship with Freelancers?

min read
Opinions expressed by Entrepreneur contributors are their own.

Normally, a freelancer is brought on board as a contractor under a professional services agreement. Essentially, you will be paying this individual to do specific work at a set rate per hour or per day because he or she has expertise that you need on a temporary basis. You are not his or her “employer."

It is advisable to have contracts in place with freelancers and to abide by the Internal Revenue Service (IRS) rules regarding these individuals. Otherwise, you might discover that they expect other non-standard considerations when their contracts end.

For example, it is not uncommon for an independent worker such as a freelancer whose engagement period has ended to apply for unemployment insurance benefits with a state agency. Then, when officials do not find any earnings reported for the worker, an investigation ensues. For misclassifications, the payouts most often involve benefits and lost wages including unpaid overtime.

Contractors should all have specific self-determining kinds of work to do, normally in a finite time period, with defined deliverables, using their own place of work and so forth. If you look at Section Two of the IRS Publication 15-A, you will see what the IRS considers when determining whether a worker is an employee or an independent contractor (i.e., 1099 worker).

The IRS will help an organization free of charge to determine the appropriate classification for a worker or group of workers in the organization as regards federal law. To obtain that service, you complete and submit IRS Form SS-8 to the IRS. However, your state may have more or different requirements.

Related: The 10 Best Things for Entrepreneurs to Outsource  
Related: Sample Professional Services Agreement [Premium] 
 

More from Entrepreneur

Get heaping discounts to books you love delivered straight to your inbox. We’ll feature a different book each week and share exclusive deals you won’t find anywhere else.
Jumpstart Your Business. Entrepreneur Insider is your all-access pass to the skills, experts, and network you need to get your business off the ground—or take it to the next level.
Create your business plan in half the time with twice the impact using Entrepreneur's BIZ PLANNING PLUS powered by LivePlan. Try risk free for 60 days.

Latest on Entrepreneur