#freelanders

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[thebusinesssolutionnetwork-blog]

Freelancers Click With Quad State Businesses

  In one of our sessions, Steve Lanning told of the years he was volunteering with SCORE and came across an ingenious entrepreneur. This guy, Steve decided, was beyond the scope of mere SCORE volunteers.

This guy thought up businesses from the local and national trends he observed and just plugged in freelancers to run the project.

It was an ingenious operation from an ingenious mind we were told...UNTIL the IRS came a-knocking. Seems that of the four businesses he had launched, all the freelancers (independent contractors) from three of the four businesses were classified as employees. Thus FICA and all the other taxes were due and payable immediately.

The entrepreneur had forgotten the rules of making sure he was hiring independent contractors and not employees.

What is the Difference Between an Employee and a Contractor?

The Quad State Business Journal is going to be launching their own Quad State Roundtable for freelancers and so this was an important discussion.

The QSBJ has had, even in the middle of our two-year running launch, a number of business owners ask us where they can get this or that talent for a project they are launching. So we're looking to fill the bill.

Usually the project is a digital start-up and thus digital freelancers were required who knew and loved all things websites and Internet marketing.

In this Internet age, experts are needed quickly, paid well for a short time, and the relationship is ended. Sometimes that type of relationship is all that people want on either side of the desk. The current economy has created a ton of extremely good talent on the street.

However, while freelancers and start-ups are experiencing some great win-win times together, there is the matter for the business owner of WHO you are writing checks to and HOW those folks are being treated by our IRS.

According  to a recent The Wall Street Journal article this year the beloved IRS is set to investigate some 6,000 employers to see how they have classified their employees over the past three years

For not only Quad State businesses, but nationwide, the issue is the ACA (aka ObamaCare) threshold of 50-employees and whether they have or have not exceeded that threshold and have to pay for their employee's insurance.

All businesses and their advisers are striving to have their businesses and clients stay under 59 employees. The IRS needs revenue and so the revenue search start with businesses. And a big issue rears its head on how otherwise well-meaning employers classified their workforce.

Even well-intentioned employers--especially start-ups, often misclassify what is and is not an independent contractor.   Freelancers (aka independent contractors) are wonderful for businesses, but you have to understand the legal nuances and not make mistakes.

Employee Vs. Contractor

There is not a single qualifier that qualifies someone as an independent contractor--but rather a set of guidelines/rules that must be followed.

If you get 'too detailed' in explaining the work needing done, or are 'too controlling' of your freelancer's time and place of work, government red flags can pop up unmercifully for you.

A part time employee is not automatically considered a freelancer or independent contractor. Further, a person hired for just a short time for one or two projects does not automatically received the contractor mantel.

The interesting thing is that this criteria holds true even for part-time or short-term help. You might think that if you hire someone for a limited time, that worker is automatically considered a contractor.

For example, if you’re asking a consultant or a software developer or anyone to work at your office from 9-5, then most likely, you are hiring an employee.

Here's what the Small Business Association says are the safe-harbor provisions in a checklist for an independent contractor are:

Independent contractor: Operates under a business name, has his/her own employees and maintains a separate business checking account; advertises his/her business' services; invoices for work done; has more than one client; has own tools and sets own hours; keeps business records.

Employee: Performs duties dictated or controlled by others; is given training for work to be done; works for only one employer.

Seven Ways To Avoid Freelance Hiring Issues

Do NOT be afraid to hire an independent contractor. They can do your business a lot of good.  Here Just because the IRS may be cracking down on employers, you shouldn’t be scared away from properly taking advantage of independent talent. You just need to be savvy about the process. Here are a few tips.

1. Issue a Form 1099 for all independent contractors. This is a must, as every auditor will first ask to see your Form 1099s.

2. Do not over-do it with your control or supervision over a contractor. You can set deadlines, but avoid setting specific hours for when they need to work. When possible, avoid giving your contractors such tight deadlines that they have to work full-time for you.

3. Don’t ask the contractor to work at your office or provide them with equipment unless it’s absolutely necessary.

4. Hire contractors who have incorporated their business, rather than ones who operate as sole proprietors. While this is one of the most effective ways to avoid auditing trouble, not every great contractor is going to be incorporated (so just be sure to follow the other tips).

5. Hire contractors who have different clients. If you are a freelancer’s only client for the year, that’s a red flag. If someone is just starting out and doesn't have other clients yet, that’s okay. But verify that they are actively marketing or advertising their services.

6. Don’t give a contractor your employee handbook or ever refer to them as an employee of your business.

7. Make sure that all contractors issue invoices for their work. Never pay them bi-weekly, weekly or monthly like you would pay an employee.

By being smart and knowing the rules, you can use independent talent for your business. Talk to your tax professional or an attorney familiar with employment law if you have any questions about how to classify a worker.

We urge Quad State owners to explore using (more) LOCAL freelancers. As mentioned above, the Quad State Business Journal will be launching a LOCAL freelance division for the Quad State region. Think of it as your local, private version of E-Lance or O-Desk.

September 4 at the monthly Eastern Panhandle Entrepreneurs Forum in Charles Town, WV, we will be releasing more details on this freelancer project.

In the meantime, if you currently use freelancers and want to share your story with freelancers--good, bad or ugly--we're taking all calls!

Now, go create or shake up your market!

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Article first appeared: www.QuadStateBusinessJournal.com