How do you avoid the Independent Contractor Trap?

Just like Admiral Acbar realized and then boldly proclaimed in the Star Wars series during Return of the Jedi, It’s a trap, a business can find itself trapped and unlike Admiral Acbar, not ultimately succeed in destroying the Death Star and defeating the Empire . . .

Most businesses use independent contractors either on a regular basis or from time to time. Operating as if a person or entity is an independent contractor; then discovering the state employment security commission, the state department of Labor or the Internal Revenue Service considers the person an employee can be disastrous. Past due worker’s compensation insurance premiums, past-due taxes, and additional liability, can be substantial. Below is some practical information to assist you in maintaining solid independent contractor relationships:

1. Use written agreements to document the relationship. The written agreement can be a powerful source of documentation of the independent nature of the relationship. As a result, it’s critical the written agreement is drafted to operate as proof of an independent contractor relationship.
2. Use an Affidavit of Independent Contractor Status. This document is often considered by insurance companies to determine whether to require worker’s compensation insurance.
3. File the appropriate tax documentation (federal and state).
4. Be certain that it is the independent contractor that determines the manner and means to accomplish the task. You can retain control of the outcome or final product
5. Require the independent contractor to provide you with invoices prior to payment.