How Do I Pay an Independent Contractor

By hrlineup | 02.01.2020

Independent contractors, also called freelancers, are people who are hired by a business to perform certain tasks or provide specific services as a nonemployee. Independent contractors are only paid for the tasks they perform for a business and so, they pay their own medical takes and Social Security. Many small businesses prefer to hire independent contractors other than hiring salaried employees in order to cut down on business expenditure. The benefits of hiring freelancers are many, including:

  1. An employer’s flexibility in being able to pay for only the hours worked or the tasks performed. With freelancing, an employer does not have to spend money when work is not available, saving a considerable amount of money for a business.
  2. An employer is able to outsource some of the important tasks that the business is not able to offer in-house. Some important services such as maintenance and IT can be very expensive to set up in a company, especially in a small business or a startup but through freelancing, the business is able to get all the services they need without paying more for them.
  3. With freelancers, an employer can easily and quickly terminate their working relationship without experiencing any kinds of problems. Unlike firing a salaried employee, which requires a lot of paperwork and can, in the end, leave the employer facing serious lawsuits, a freelancer’s contract can just end with no issues at all.
  4. Working with freelancers is cost-effective for any business. The employer is not required to pay any taxes, benefits and sign any agreements just to get the services his business is in need of.

There are disadvantages too, in working with an independent contractor, which leaves many business people wondering who to hire between an independent employee vs contractor. An employer has for instance to be extra careful when hiring independent contractors. To avoid any problems, ensure that you check the credentials of every freelancer you hire, to ensure that they do not have any felony convictions.

How to pay an independent contractor

From the definition contract employee, paying a freelancer is much simpler when compared to paying a salaried employee. Some freelancers prefer to be paid per hour, others per job and others per individual contract. An employer is not required to withhold any tax from the employee’s wages, nor pay for Social Security and Medicare and other employment taxes.

However, employers are required to keep a track of all payments made to independent contractors every year. Again, you are required to withhold taxes on payments made to freelancers if the freelancer has not provided you with their Social Security Number, their individual taxpayer number or their employer ID number. You could also withhold taxes on their payments if the IRs has notified you that the taxpayer ID number is incorrect.

From the definition of contractor vs employee, it is very clear about the advantages and disadvantages of each type of employee for a business person to decide on who to hire for certain services and their type of business.