Thursday, August 21, 2014

Preserving Your Payroll. Will Using Contractors Get You into Hot Water with the IRS ?

It happens. You're looking at the work ahead of you and realize your current workforce can't take it all on. But you also know your budget isn't going to allow for another full-time employee. So what's a hiring manager to do?
In the unmanned and robotics field, there will be many times where the need for contract workers versus full time employees makes sense. Perhaps there is a bid proposal you could use some assistance in writing and compiling. Or maybe you need an expert engineer to help guide a new project in its beginning stages. The beauty of hiring contractors is that you aren't responsible for providing benefits or other perks often enjoyed by full-time employees. But you have to make sure the designation is fitting in order to avoid coming up against IRS fines for violating employment laws.
·         Is the Job Short Term?  If the work you are looking to hire for is truly only short term, a contractor is probably the way to go. This is the case when you a hiring for the startup of new projects, knowing that the work itself has an expiration date. But when you continue rehiring the same contractor again and again, or you extend the project out indefinitely - you need to consider reclassifying the worker as a full-time employee.
·         Are the Skills Required Part of Your Regular Business Functions?  Hiring a contractor for something that is outside your typical scope of business is perfectly acceptable, and even advisable. Those bid proposals are a perfect example of this. Bidding on jobs is not a core function of your business, and is therefore something you may only need occasional help with. But if you are looking to hire a contractor to do the same work you have full-time employees doing on a regular basis, it can be much harder to justify the designation.
·         Has the Contractor Worked for You in the Past?  Often, a retired employee will begin working as a consultant after their full-time career has ended. This offers them more flexibility in their schedules and allows them to continue keeping up some level of work. Unfortunately, if someone has been employed full time with you in the past, it becomes more difficult to justify to the IRS your reasons for classifying them as a contractor in the future - particularly if they are taking on the same tasks they performed for you as an employee. 

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