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US Company Must-Dos When Hiring Independent Contractors

February 20, 2021
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Most businesses are working with independent contractors these days. According to research, contractors are expected to represent 40% of the working force in the next year or so.
Although this sounds exciting, there are several things you need to take into account if you are planning on hiring contractors for your company. We created a list of four must-dos to help you navigate the process.

#1 Collect a W-9 (or W8-BEN) form

A Form W-9 (Request for Taxpayer Identification Number) confirms that the person you hired is legally allowed to work in the US, if they are a US resident or citizen. Having this form is absolutely essential if you want to avoid the risk of illegally hiring labor.

If the person you are hiring is a foreign resident or citizen, you’ll need to collect a W-8-BEN form instead. On top of that, make sure they are allowed to work as a contractor in their country.

#2 Sign the contract agreement

A contract agreement signed by both parties is a part of the standard procedure. Although it's not absolutely necessary, it is highly advisable to have the contract. It simply protects both parties and removes any potential conflicts. The contract should include the project scope, compensation structure, product ownership, and intellectual property. Other similar items can be non-disclosure agreements etc..

Bare in mind, simply saying that the person you're hiring is an independent contractor and not employee will not suffice. You need to be careful when making the classification. Check out the differences between an independent contractor and an employee beforehand.


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#3 Keep all documentation

Just like you would keep records of your employees documentation, you should do the same for the contractors. Your contractor file should include a signed copy of the contract, invoices, and receipts or electronic payment confirmation.

#4 Issue From 1099 at the end of the year

As a US company, you’ll need to issue a Form 1099-NEC (previously Form 1099-MISC) to any contractors to whom you paid more than $600 throughout the year. make sure to send these to all your contractors by January 31st of the following year. You will have until the end of February to submit a copy to the IRS.
Managing payments and compliance for independent contractors gives you headaches? Let us help you.
Deel helps companies onboard contractors, pay them in one click and automatically generate all the invoices and tax forms needed. We allow contractors to get paid with the payment method of their choice and at the best exchange rate for their local currency.
Learn more about how we can help you by scheduling a demo.