Here are ten tips to keep in mind when retaining a contractor:
1. Don’t classify someone as a contractor just because that person asks to be a contractor. The business bears the responsibility, and liability, for appropriately classifying its workers.
2. A signed contract is not enough. A court or auditor will look beyond the contract to determine whether the individual meets the appropriate tests for contractor status.
3. Do not pay an individual; instead, ensure you are paying a tradename or business entity. Payment to an individual is a red flag for auditors, even when the person is legitimately a contractor.
4. Avoid hiring former employees as contractors, unless you are certain they meet the test for contractor status. Again, this is a red flag for auditors, as employees are sometimes reclassified as contractors even though their actual duties have not changed.
5. Get a business card, print out a website, or maintain some other evidence that the individual has a business and makes his or her services available to others. This type of evidence can be very helpful in the event of an audit.
6. Get your attorney involved early to ensure the person meets the appropriate tests. Although a written agreement is not dispositive, it can help, and analyzing the issue before an audit is generally better than analyzing it for the first time during or after an audit has begun.
7. Do not treat the individual like an employee, i.e., do not have the person sign an employment contract, do not evaluate the individual with the same forms you use for employees, and if you give the person a business card, be sure it notes the individual is a contractor.
8. Do not retain someone as a contractor with the idea of hiring that person as an employee if he or she does well. Most likely, that person will not fit the tests for contractor status.
9. Do not assume that individuals performing short-term projects or part-time work are automatically contractors. Often times, they are part-time or short-term employees.
10. When in doubt, err on the side of employee status.
Contractor misclassification is a big issue in Colorado and many other states. Therefore, be cautious when retaining contractors, and be sure they meet the appropriate tests for contractor status.