Contractor Law: 6 Rights and 5 Tips To Follow 2023

Once your worker agrees to make the switch, it’s time to get them set up with the benefits and protections they’re legally entitled to. You’ll need to be prepared to tackle all the HR compliance issues that come with having employees. If it’s a long-haul, exclusive relationship, it’s leaning towards employee territory. A marketing consultant who’s been with one company forever and isn’t seeing other people, so to speak, is likely an employee. But if it’s a more casual, come-and-go relationship, like a graphic designer who hops between different clients and projects, that’s more in line with an independent contractor.

There are also some business-to-business exemptions and referral agency exemptions and they both have their own set of specific requirements to meet the exemption. I assume from your comments that you are the founder…and will likely be a board member. That’s OK, so long as it is the rest of the board who hires you and establishes your compensation package. Employers have substantial oversight of employees’ day-to-day work. Contractors maintain greater independence in how they complete assignments for various clients.

Of course, there are more nuances to consider, especially when working with contractors in different countries. The right choice depends on several factors, like the type of work to be performed, your company’s goals, and your budget. An executive director is the senior operating officer or manager of an organization or corporation, usually at a nonprofit. … The executive director is responsible for strategic planning, working with the board of directors (B of D), and operating within a budget. The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter. In some ways, it’s harder than running a more typical small business.

Your tech team may need fresh engineers in Australia, or accounting could use a math whiz in Canada to keep the numbers in check. This is after 40hr per week of work, having an alarm code and getting a key to the office. Also her salary has been dropped to $100 per week, which she has to raise herself in donations. First, sorry for the delay in answering what appears to be a time-sensitive question. The IRS also uses a multi-point test to evaluate such classification issues. Answering these types of questions will guide you to making the right decision for your business.

Voluntary Classification Settlement Program

Misclassification stands out as one of the most important concerns that could trigger substantial financial and legal consequences. Your company faces more than just immediate fines and legal fees – there’s potential liability for unpaid taxes, overtime compensation, and back pay with interest. Think about your best-performing team member for a second—the one who’s so reliable, they feel indispensable. That’s what can happen when you rely on contractors without locking in long-term talent. If you’re treating your contractor like an employee—assigning schedules, dictating tasks, and including them in company meetings— it might be time to give them a proper seat at the table. Converting contractors to employees doesn’t just protect your business; it gives your team the stability, loyalty, and talent it needs to thrive.

Contractors may not be loyal or embrace the company culture.

An independent contractor’s only expectation is to deliver on the end-product or results. Managing employment benefits can feel overwhelming, but Enty streamlines the entire process. With automated contract templates and tools to customize contracts and invoices, you can ensure that all employee terms are clearly defined and properly communicated. From health insurance clauses to performance bonuses, Enty helps you document these terms efficiently, saving you time and reducing risk. It’s really important for businesses to make sure they know if someone working for them is an employee or an independent contractor. If they get this wrong, it can lead to big contractor or employee time to get it right problems like legal issues, having to pay a lot of money, and unfair situations for workers.

Some of these expenses can be mitigated when hiring part-time employees, vs. full-time employees. But you’ll want to be careful when calculating potential employee expenses. There is a lot more to consider besides the price of healthcare. Having your own consultancy, whether it’s business consulting, management, or coaching, requires completing a diverse stream of tasks. Employee goal setting is crucial for reaching broader business goals, but a lot of us struggle to know where to start.

Employees

Outsourcing refers to contracting external persons or companies to perform specific tasks or services for your business. This approach is popular among small businesses that need to reduce costs, access specialized skills, or increase flexibility. And let’s not forget the hassle of constantly finding and training new contractors for each project—that adds up!

Company Culture Fit

Generally, you do not have to withhold or pay any taxes on payments to independent contractors. The company evaluated its options and decided to hire a contractor with a proven track record in running successful ad campaigns for similar businesses. The project was time-sensitive and required a specific skill set that wasn’t needed on an ongoing basis. The company avoided the long-term commitment and overhead costs of hiring a full-time employee by choosing a contractor.

• To get the ball rolling, here are some additional questions to ask yourself.
• The Department of Labor’s (DOL) groundbreaking new rule on Contractor vs. Employee classification is a game-changer for businesses and workers nationwide.
• So, if you are both a board member and prospective employee, make sure you observe arms-length requirements.
• As a small business leader, hiring help is an exciting step in the growth of your company, but this kind of growth also comes with important legal and financial considerations.

Don’t shy away from asking what’s coming up for them, and really tune in to what they have to say. Make sure they know you genuinely care about them and their experience working with you. Let them know that in order to properly classify you, they’ll need to come up with a formal offer letter.

Human Resources Management

Effective management builds trust and ensures each team member understands their role in project success, whether contractor or full-time employee. Now that things are slowly returning to normal, some small business owners are having trouble hiring. According to a March 2021 survey by the National Federation of Independent Business (NFIB), 42% of all small business owners reported having job openings they couldn’t fill — a 48-year record high. Health concerns around the coronavirus crisis, low wages, lack of child care, and increased unemployment benefits have all been discussed as contributors to the shortage of workers.

• Contractors, while more flexible, don’t have these obligations, but misclassification can lead to legal and financial penalties.
• The letter needs to spell out your employee title, duties, responsibilities, pay, and all that jazz.
• The agreement should be customised for each working arrangement (as with all legal documents, avoid using a generic template).
• Legitimate businesses do not engage in these practices and seek to proactively remain compliant with all applicable rules and regulations at the city, county, state, and federal levels.
• Converting contractors to employees demands attention to detail and smart process management.
• Instead, you can expect them to manage their time and responsibilities independently.

The Canada Revenue Agency (CRA), Ministry of Labour (MOL), Labour Board, and the courts can all make an independent determination of whether you truly are who you say you are. Our platform handles all the human resources logistics — like background checks, onboarding, shipping equipment, managing taxes and benefits, and ensuring compliance. Essentially, we take on the legal responsibilities as the official Employer of Record (EOR) for your international employees. Investing in full-time employees ensures stability and alignment with your goals while fostering a positive workplace culture.

If an employer-employee relationship exists (regardless of what the relationship is called), then you are not an independent contractor and your earnings are generally not subject to self-employment tax. However, your earnings as an employee may be subject to FICA (social security and Medicare tax) and income tax withholding. Generally, earnings of an employee are reported on Form W-2, Wage and Tax Statement. At Ubiminds, we specialize in helping software companies build agile, skilled teams through tailored hiring solutions.