Independent contractors, consultants and freelancers are one of the fastest growing business types in the U.S. Freelancers alone represent 34 percent of the U.S. workforce and provide other businesses with services and expertise that can’t be found in-house, oftentimes becoming an integral part of a company’s workforce. This perception, however, can sometimes become problematic.
On the surface, independent contractors often fulfill the same duties as a regular employee, but sometimes the lines between independent contractors and employees get blurred. And that can get you into hot water with the IRS. Here’s why:
Why you need to consider the IRS when hiring contractors.
One of the benefits of hiring independent contractors is that you aren’t required to pay them a salary, benefits or withhold employment taxes in the way you would for employees. The IRS has upped its efforts to collect employment taxes and is clamping down on employers who misclassify employees as independent contractors (deliberately or otherwise).
Statistics suggest that up to 30 percent of firms are misclassifying contractors so understanding the difference between an employee and an independent contractor is hiring 101. The consequences of getting it wrong can be painful – no one wants to deal with IRS penalties, back payments and interest on uncollected payroll taxes. Continue reading