Hiring Contract Employees
The IRS has significantly increased its employer audits of independent contractors and penalties are significant.
Please find below a BASIC guide to follow when thinking about independent contractors. If you have questions, please contact the Human Resources Office at x6140.
Please be mindful that designating a person as an independent contractor in order to pay them out of your operating budget puts the College at risk and unfairly treats the individual since they receive no Social Security benefits from their employment at Bates College.
Independent Contractor (Self-Employed) or Employee?
Before we can determine how to treat payments for services, we must first know the business relationship that exists between your department and the person performing the services. In determining whether the person providing service is an employee or an independent contractor, we have a list of questions that help us determine the degree of control over the work which must be considered.
An independent contractor (IC) is someone who runs his or her own business. Independent contractors earn their livelihoods from their own businesses instead of depending upon employers to earn a living. Independent contractors are sometimes called consultants, freelancers, self-employed, and even entrepreneurs or business owners. Unlike an employee who works for one employer, independent contractors typically work for a number of different clients, tackling particular jobs or projects that require special expertise. There is no problem with bringing an independent contractor on as an employee of the College. The problem occurs when a person who should be designated as an employee is misclassified as an IC.
Fines and penalties for misclassification can include liability for state, federal and local back taxes, social security contributions of the employee and the employer, federal unemployment and state unemployment taxes, penalties and interest. Federal agencies have announced several initiatives within the last 12 months to combat mis-classifications, and the Internal Revenue Service is increasing the number of audits it will conduct of employers who classify workers as independent contractors.
It is critical that Bates College correctly determine whether the individuals providing services are employees or independent contractors. If you are considering hiring an independent contractor please contact the Human Resources Office prior to negotiating an agreement so we may determine whether individuals you hire are independent contractors or should be classified as employees.