Hiring Independent Contractors vs. Employees: What You Should Know

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Independent contractors and employees both work for the company that hired them. Sometimes, they may even do the same job, in a different way. However, there are actually several differences between the two that may affect how background checks work.

Here we look at those differences so you may know how to approach the two different types of workers of your company, and how you should conduct background checks before hiring them.

Control

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The most evident difference between the two is that although they both work for the same company; the employer possesses different levels of control on them.

The employer can control how, when, where, and what an employee can do within the company. However, independent contractors can do what they do best, as long as the result satisfies the employer.

That’s why during background checks, employees should be assessed of their productivity, creativity, and things like that, while contractors only need to be checked whether their services are top-notch.

Payments and Taxes

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Employees are paid depending on the hours they worked for the company. However, independent contractors are paid for every task they finish.

In addition, employment taxes are paid by employers while contractors pay for self-employment taxes themselves.

So, you’d better make sure employees have a great history with other companies so employment taxes and benefits will be worth it.

Loyalty

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Employees usually work for only one employer, unless they have time to juggle more than one job. In the case of independent contractors, they can work for as many companies as they want.

This is the reason why you should check the history of independent contractors with completing multiple jobs at the same time because that’s going to be the case most of the time.

Work Hours

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Employees are required to work in fixed hours set by the employer. Independent contractors work their own hours.

If you want to achieve optimum results for contractors, make sure you check first their agency if their typical work hours suit the needs of your company.

Different problemsrequire different solutions. Companies are no exception. Before conducting background checks on an applicant or an agency, make sure first if they really are what you currently need in your company.

Employment Laws You Didn’t Know Affect Independent Contractors

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Independent contractors are mostly agencies that handle a specific task in a company. It may work for a company, but when in contract, they’re still able to work for others. In short, they are not employeesand they are independent.

At first glance, it’s natural that your reaction may be that you should steer away from such services because they won’t be loyal. An example of this is a cleaning service. They can work for you, but they may also work for others.

However, as far as benefits are concerned, you’ll actually be better off hiring an independent contractor. But of course, even if they’re no employee, you still have to follow the laws regarding employment.

Here we look at the employment laws that will affect these independent contractors, and in turn, affect how you should approach the background checks of such services.

Exemption to Tax and Benefits

The hiring company may spend additional taxes on behalf of employees, such as unemployment and social security taxes, or employment benefits.

However, since it’s written in the paper that this only applies to employees, independent contractors will be a special case.

Since they aren’t employees of your company, you won’t have to spend such expenses on their services.

So, the next time you run a background check on them, make sure you focus on their reputation and management history, rather than their unemployment history or social security since it won’t be necessary.

Compliance to IRS Screening Process

The IRS, or Internal Revenue Service, uses information gathered from an employee or a self-employed group to calculate the income tax to be received.

This needs the cooperation of both the employer and the independent contractor. This is because you have to prove that the group really is an independent contractor.

They’d have to provide valid IDs, pay for the self-employment taxes, and more.

Thus, it’s important that you conduct background checks on the reviews of other companies they’ve worked for. That way, you can figure out if they did what they were required to do.

Department of Labor (DOL) Regulations

In addition to taking care of the IRS screening process, you’ll also have to comply with the regulations of the Department of Labor.

This is the most detailed regulations you’ll find, next to the IRS. So, we suggest you check the DOL Regulations in more detail.

Either way, this is the same with IRS because they’d also have to prove that the agency you hired is an independent contractor.

State Regulations

Lastly, you’ll find each state in the US has different regulations regarding independent contractors. Plus, if you can’t comply with them properly, there will be fines and other kinds of penalties.

This is actually quite simpler than the others. Firstly, make sure the agency is free from any hiring entity. What your business does should also be unrelated to the agency.

This is why background checks are essential. In addition to not paying a fine for being unable to comply with regulations, you can keep your company’s reputation untarnished.

Employment Law: Do You Know Your Rights?

From Visually.