Simple and Legal: What’s the Best Way to Pay Independent Contractors?

Are you thinking about hiring independent contractors? This can be a great solution for you if you need some quick, specialized work done but you don’t want to hire a full or part-time employee. 

With marketplaces like Fiver and UpWork, there are so many people to choose from to help you make your business or project a success.

But how should you pay independent contractors? Should you give them a contract with some set hours? Or should you pay them as if they are a freelancer or as if you are hiring their business? 

Here’s everything you need to know about the best way to pay independent contractors. 

Self Employed

The most obvious way you can pay independent contractors is as self-employed people. These are people who work for several different companies, they might even own their own company. 

You are merely one of many people they work for and they can file their taxes at the end of the year with a simple invoice from you. Be sure they understand the tax rules for home businesses before you sign them up.

You are not responsible for their medical bills or any other expenses associated with hiring a full-time employee.

Contract vs Set Hours

A contract could be a great way of paying an independent contractor if the work they are going to carry out for you is complicated and might take several months. The contract will set out clearly the number of hours you expect the project to take and the nature of the project. A fixed contract might help them to feel more secure in these uncertain times. 

It will be for the benefit of you both so that it is clear from the start what is your responsibility and what is your employees in the case of a dispute. 

Set hours are great if you need an employee to be online at specific times of the day for you for a short period. If for example, you need someone to answer your calls or to answer queries from a client. 

Be sure to note whether the independent contractors are on a contract or set hours when you generate pay stubs for them. This is the best way to pay independent contractors.

Cash-in-Hand

You might think that it’s easier to pay someone cash-in-hand rather than deal with all this paperwork. After all, it’s so much easier and you don’t have to pay any tax.

However, be warned the IRS is clamping down on people who do this. There have been cases when they have sent out detectives to gather evidence of people carrying out work and not declaring it. 

It’s your responsibility as much as it is the contractor you employ to make sure everything is above board.

This might also be tempting because of the Covid crisis which is putting a strain on small businesses but remember the U.S Senate has passed a $500 billion stimulus bill to help you.

How Should You Pay Independent Contractors? Be Smart and Legal

If you are wondering the answer to the question of how should you pay independent contractors then the answer is to be smart and legal. Don’t pay your contractors cash-in-hand which can get you into trouble.

Decide whether you want them to work a set number of hours or if you want the work to be listed in the contract. 

If you are interested in learning more about paying independent contractors then be sure to check out the rest of our site.