How can you ensure that the IRS or state authorities won’t challenge the status of workers you call contractors? And how can you avoid being sued by a contractor who claims he’s an employee entitled to benefits? Follow these five steps:
- Enforce the worker-status rules uniformly. Be consistent in how you categorize everyone within the same class of workers.
- Re-examine your benefits policy. Many companies are rewriting their so that the plans explicitly exclude contingent workers. They’re reacting, in part, to a recent court ruling that ordered Microsoft Corp. to include a group of contingent workers in its 401(k) plan, which was open to all employees.
- Have an accountant certify your worker classifications. A letter affirming your workers’ status will help demonstrate that you made a good-faith effort to comply with the law.
- Sign a contract. Although formal contracts with freelancers won’t offer total protection, they can reduce the odds that you’ll face tax penalties when the IRS comes calling. Include a description of the work to be performed, how much you will pay, deadlines, a statement that no benefits will be provided and, if necessary, a confidentiality clause to protect proprietary information.
- Keep your distance. Don’t try to control how and when contractors carry out their tasks. The more control you exert, the more likely it is that they will be reclassified as your employees.