How to Hire an Independent Contractor

Form a Written Contract

Now that you understand what makes an independent contractor different from an employee, it’s time to formally retain your contractor. You should consider creating a written contract with terms that preserve the independent contractor relationship. Below are a few examples of these critical provisions. Please note that it is always advisable to engage a seasoned business attorney to create the right contractor agreement for your business.

Manner of Work: The contractor must be free to perform the services in any manner they choose.
Insurance & Licenses: The contractor must carry their own forms of insurance and up-to-date licenses relating to the services.
Taxes: The contractor is responsible for paying their own taxes.
Expenses: The contractor is responsible for paying all actual and incidental expenses relating to the services.
Confidentiality: If you are going to disclose proprietary or confidential information to the contractor, then there should be confidentiality provisions in the contract. You could also consider creating a more thorough non-disclosure agreement for further protection.

Documentation

As mentioned in the section above, an independent contractor should carry their own insurance and up-to-date licenses. Consider requesting these documents prior to engaging the contractor.

Tax Forms

Here is a basic list of important tax forms for independent contractor relationships. It is always a good idea to consult a tax professional to ensure these documents are completed correctly.

Form 1099-NEC – Non-employee Compensation. Use Form 1099-NEC to report contractor payments to the IRS and State Tax Department. The contractor also receives a copy of this form for their own tax returns. Please keep in mind that you only need to distribute Form 1099-NEC if you paid the contractor at least $600 in the past calendar year.
Form W-9 – Request for Taxpayer Identification Number & Certification. Use Form W-9 to request personal information from the contractor to process Form 1099-NEC. Do not submit this form to the IRS! Form W-9 contains sensitive personal information about the contractor that should remain confidential. So guard it with your life…
Form 1096 – Annual Summary & Transmittal of U.S. Information Returns. Form 1096 is a cover sheet for each Form 1099-NEC you submit. It cannot be printed off the internet and should be ordered from the IRS well ahead of your tax filings. If you have your tax returns professionally prepared, then the tax professional should have official copies as well.