For small businesses looking to build a team, independent contractors can be a relatively low-cost alternative to full-time employees and other workers. Since employers aren’t required to provide benefits to contractors or withhold taxes from their pay, businesses can save a good amount of money by choosing freelancers over full-timers.
But these benefits don’t come without caveats. Businesses that incorrectly classify workers as independent contractors open themselves up to potential IRS audits and fines, and there are specific rules concerning taxes that business owners must also adhere to.
Here’s a helpful infographic to help you stay compliant when hiring independent contractors.
The benefits of hiring contractors are obvious: Your company can save money, have a flexible workforce and execute specialized tasks. But the penalties for incorrectly classifying workers can seriously hinder your business. As such, it’s vital that you perform due diligence and ensure your contractors are truly independent.
For a simple way to determine whether your workers are actually contractors, see our Independent Contractor vs. Employee Wizard. If you’ve hired contractors in the past year and need help managing your taxes, check out our guide to 1099s for businesses that employ contractors.