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Not every contractor is a contractor. If you bring on a remote team member to support your business, you may think you automatically have a contractor, but are you treating your contractor like a contractor?
According to the IRS, there are several behavioral factors that come into play when determining whether someone is a contractor or a remote employee. You may have signed a contract that specifies that the person is a contractor, but the language used is only one part of the greater picture.
How to Tell if Your Contractor is Actually a Remote Employee
Here are some signs that your team member is actually an employee. If you answer yes to any of these questions, be careful! You can wind up in a mess if you fail to treat your employees as employees (and compensate accordingly).
- Do you have a say over when and where your team member works?
- Do you lay out specific directions for how you want your team member to accomplish tasks?
- Do you provide equipment for the team member?
- Do you give specialized training to your team member?
- Are you the only person or company your team member is working for?
- Do you set the payment rate and decide when and how the team member is paid?
- Do you reimburse all expenses incurred, so that your team member has no costs or out of pocket expenses?
On the contrary, the following factors help identify a true independent contractor.
- A contractor decides which days and hours she is going to work and which holidays to take off.
- A contractor already has specialized skills and uses them to determine her own course of action and method for best accomplishing what needs to be done.
- A contractor has generally made an investment in his business, and he supplies his own equipment for performing work.
- A contractor is free to (and usually does) provide services to multiple entities and advertise himself to his market.
- A contractor sets his own rates and method of payment (or negotiates it with his client) and may incur costs in the course of performing his services.
It can seem very appealing for a business owner to work with a contractor rather than an employee. Employees are expensive and a big liability! It may seem easy to use contractors, instead, and save on the overhead, the taxes, the everything… but when working with contractors you also must release some of the control you might have had if you were working with an employee. To continue to treat a contractor as an employee can lead to lawsuits and fines that you’d really rather avoid.
If you need that control – if you need to be able to say when and where and how the work is done – that means, simply, that you need an employee. There’s no way around it.
If, however, you don’t need that control, it may just take some practice and awareness to step back and let the independent contractor be a true IC.
To those of you who, like me, are independent contractors, make sure you’re aware of your position, and please don’t let your clients dictate to you how or when you should be working and getting paid! It is your responsibility to provide high-quality, timely work, to meet the terms of your contract, and to make sure you have the tools needed to complete your tasks.
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