Independent Contractors
So, by now, you have your business set up, you are advertising and the calls are rolling in! Yay! Good job. So what happens when you are too busy and can't keep up with it all?
You can do two things.:
- Stop taking on new clients or...
- Hire Help
We will use this section to talk about hiring IC's (Independent Contractors).
There are many tax advantages to using IC's:
- You don't have to pay the employers part of federal withholdings, social security and medicare.
- You don't have to purchase workman's comp.
- You also save on insurance since your IC's must carry their own insurance.
For these reasons and others, many people choose to go the route of hiring IC's.
Before you go there, make sure you do your research! Many states have very specific rules about the classification of an IC. All states differ with this, so you want to make sure you are following the rules of your state.
IC Restrictions:
IC's run their own business. You can not tell an IC what to do, where, when or how. This is only for employees. You can tell the IC you have a job for them, what it is, where and what times the client wants them there, but that is all. You have no control over an IC and this is one of the major disadvantages.
Many states do not allow you to use an IC for services you offer your clients normally. This will vary from state to state. For example, if you offer pet sitting as your primary service, you can not subcontract out pet sitting jobs. However, if you have a client ask for grooming services, you can subcontract for that.
IC Rules:
An IC carries their own insurance and business license. You can also carry supplemental insurance that will cover IC's just in case their coverage is not enough.
An IC is responsible for reporting their own income. You will provide the IC with a 1099 at the end of the year reporting their income.
An IC is not entitled to any benefits (medical, unemployment, workman's comp.)
An IC should keep your client's information and your business information private. For this, you should have your IC sign a non-solicit agreement.
All IC's should sign an IC agreement. This is to show the IRS you are using an IC and the IC has agreed to the rules of being classified as an IC.
If the IRS feels you have an employee that you are classifying as an IC, they will impose fines on you and you will also be responsible for backtaxes. So, you want to be sure you are doing this properly.
