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The Tax Prophet Newsletter   Issue #103 November 2011


In This Issue:
Key Steps

Independent Contractor vs. Employee -- The Basics

Part 3 of 3

Key Steps

A company hiring an independent contractor should make sure that at a minimum:

    1. The company has a W-9 Form (Request for a Taxpayer Identification Number) on file.

    2. The company reports payments of more than $400 on Form 1099 and timely files the form with IRS.

    3. The company and the worker enter into a written agreement that expressly states the independent contractor relationship, that the worker will be responsible for all taxes on payments made by the company, that the worker will have all business and professional licenses needed to conduct his or her business, and that the contract cannot be terminated at will (there should be at least a 15-day notice of cancellation clause).

    4. When possible, the work should be performed at the worker's premises and the worker should own his or her own tools.

    5. The worker should have the right to subcontract all or a part of the job to another individual.

    6. The worker invoices the company on the worker's stationery and, if possible, bill a project basis, rather than for hours worked, and is paid accordingly.

    7. No employee perks or fringe benefits should be paid to the worker.

    8. The worker performs services for at least one other company, preferably two or more companies and that the total time spent working with your company does not exceed 70% (this is a ballpark figure).

Remember, a full-time worker will be considered an employee, regardless of the paperwork and separate business status. The worker should hold himself or herself out to the public as an independent business and should have a website and other indicia of a business looking for work.


With the worker's blessing and the proper documentation, a company can confidently hire workers as independent contractors.

It is safest to hire an independent company that works for several businesses and that holds itself out to the public as a separate business entity.

Attention to detail is critical: Be sure to have the proper documentation and contractors, send Form 1099 when required, and make sure the contractor has all businesses and professional licenses needed to operate the business.

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All contents copyright 2011 Robert L. Sommers, attorney-at-law. All rights reserved. This newsletter provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet is a registered trademark of Robert L. Sommers.