3 Documents You Need When Hiring a Contract Worker

Hiring Freelancers, Outside Contract Companies, Non-employees

Documents Needed When Hiring Contract Workers
Documents Needed When Hiring Contract Workers. Ariel Skelley/Getty Images

What New Hire Paperwork Do I Need for an Independent Contractor?

Hiring an independent contractor to work in your business? The hiring paperwork for independent contractors is much simpler than for employees, with only a few documents needed, but these are important documents. Getting them at the beginning of the work relationship is a lot easier than when the job or contract is done and you can't find the person.

 

What is an Independent Contractor? 

An independent contractor may be one or more people who are in a separate business from yours. This includes freelancers (like artists, planners, or web designers, an outside company (doing cleaning, for example), a professional such as an attorney or tax preparer - anyone you are paying for services and who is not an employee. 

 Document #1 - A W-9 Form 

The most important thing to keep in mind when hiring outside workers is that you must document your payments to them. If you pay anyone (with only a few exceptions) $600 or more in a year, you must provide this person or company with a Form W-9, which includes the contractor's taxpayer identification number, name, and address. You must have a W-9 on file for each independent contractor so that you don't have to withhold income taxes from that individual. Then, you have the information to create a 1099-MISC form for that person for the tax year (similar to a W-2 form for employees).

 

There may be an income tax withholding form required by your state. Check with your state's income tax authority for more information.

Document #2 - Application, Resume, or Documentation of Qualifications

Before you hire anyone, you should request and keep a copy documents showing the qualifications of this person for the work being done.

Education, previous work history, references, and other documents showing qualifications and background are important.

If the person is doing confidential, financial, or other critical work, you should also do a background check, get references, and maybe even require a confidentiality agreement. 

Even if you are hiring a cleaning company, you should get references and a copy of the company's previous customers. 

Document #3 - A Written Contract

For every independent contractor who works for your company, you should have a copy of a contract on file, signed by both parties. It may sound like overkill to require you to have a contract for each independent contractor relationship, but there are some agreements that need to be put in writing.The contract protects both of you in the event of a dispute. 

Some issues that need to be addressed in this contract and some terms that need to be included

  • The scope of work, including when the job is to be done, and deadlines
  • Amounts and timing of payments, when payments are due, what happens if payments are not made.
  • Who owns the work - the contractor or the hiring company? 

The most important part of this contract should be a statement that this person is an independent contractor, not an employee.

 

Document #4 - A Non-compete Agreement

While this document isn't required by any government agency, it might be a good thing to consider based on your type of business and the type of independent contractor you hire.

It happens often that an independent contractor will work for an employer for a while to gain skills and experience and then quit, go down the street, and take some of the employer's along. To prevent this from happening, many employers of independent contractors require a non-compete agreement. 

A non-compete restricts the ability of a former employee or contractor from owning a competing business within a certain area for a certain time after leaving the employer and from doing work that competes directly with the former owner. 

Two other restrictive covenants you might want to consider when hiring an independent contractor are:

(a) a non-solicitation agreement, that prevents the person from soliciting your customers or employees, and

(b) a non-disclosure agreement, that prevents the person from disclosing trade secrets or proprietary operations of the former employer. 

Keeping Records on Workers

You as a business owner are not required to turn over these documents to anyone, but if you are ever audited by the IRS, or you need to verify the relationship, you will need to produce them. So create a file for each independent contractor you hire, with these documents. 

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