Utilizing independent contractors can sometimes be a difficult and confusing task to take on. They are used not only in the healthcare staffing industry, but in almost every industry out there. It’s important for companies to have some general knowledge on independent contractors, as misclassifying employees and independent contractors can result in potentially serious consequences.
First, it’s important to know what an independent contractor actually is, as opposed to a regular employee. According to the IRS, someone is generally an independent contractor if the payer has the right to control or direct only the result of the work, and not what will be done or how it will be done. Independent contractors usually set their own hours and are paid on a freelance basis, either a flat rate or per job. They conduct their work in a manner that is independent from the company that is paying them for the work. Therefore, it’s important to note that independent contractors are not entitled to benefits that are afforded to employees such as retirement funds, 401k’s and health insurance. Independent contractors can, however, deduct certain health insurance premium costs when they file taxes.
They are also different from regular employees as far as filing taxes are concerned. Independent contractors don’t have income taxes withheld from their earnings. It is their responsibility to pay any taxes on their earnings, and not the company’s. Therefore, different measures must be taken when dealing with taxation procedures. The two most common IRS forms associated with independent contractors are the W-9 and the 1099-MISC. The W-9 (The W-4 is used for an actual employee) is a form that an independent contractor must fill out upon his/her agreement to work for a particular company. The 1099-MISC is a form that the company must fill out and submit to the IRS for the independent contractor if compensation for their work exceeds $600. These different tax procedures are an important reason why companies must be vigilant about properly classifying independent contractors and employees. A company misclassifying an employee as an independent contractor can result in substantial tax issues and penalties for failure to pay employment taxes and filing required tax forms.
It’s important for everyone in our industry to have some proper general knowledge about independent contractors. All parties involved must be aware of the nature of the agreement being set forth and the work that is to be done to ensure that individuals are being properly classified so that companies will not be subject to penalties set forth by the IRS.
