All You Need to Know When Hiring Independent Contractors


What to know when hiring an independent contractor? Hiring independent contractors can be a smart move for your business in terms of flexibility, expertise, and cost-effectiveness. 

However, there’s more to a successful partnership. You’ll need to understand the legal distinctions between independent contractors and employees and know what to consider when hiring them. With our expertise in the field, we’ll help you grasp the essentials of hiring independent contractors from a legal aspect.   

Legal Distinctions: Independent Contractor vs. Employee

Before diving into the hiring process, it's essential to understand the legal differences between an independent contractor and an employee. This knowledge gap can lead to misclassification and legal troubles down the road. Here are the key distinctions:



Independent Contractor

Work Arrangement

Works on a project basis or for a specific timeframe.

Works under your direct supervision and control.

Work Autonomy

Has control over how, when, and where they complete work.

Follows a set schedule and location.

Tools and Equipment

Provides their tools and equipment.

Uses company-provided tools and equipment.

Taxes and Benefits

Is responsible for their taxes and benefits.

Taxes and benefits are handled by the employer.

Employee Benefits

Typically does not receive employee benefits.

Eligible for employee benefits.

What To Know When Hiring An Independent Contractor

1. Tax Implications

When hiring independent contractors, you're not responsible for withholding taxes, Social Security, or Medicare. This is the contractor's responsibility. However, it's essential to issue a Form 1099-NEC if you pay them $600 or more during the tax year. Understanding these tax implications is crucial to avoid compliance issues.

2. Worker Classification Guidelines (IRS)

To avoid misclassification, familiarize yourself with the IRS guidelines for determining whether someone is an independent contractor or an employee. The IRS uses behavioral control, financial control, and the type of working relationship to make this distinction.

3. Contractual Agreements

A comprehensive contract marks the beginning of a successful independent contractor relationship. This contract should outline the scope of work, payment terms, deadlines, intellectual property rights, and confidentiality agreements between parties. You could hire a legal counsel or a knowledgeable HR professional to help with this.

4. Liability and Insurance

Independent contractors should have their liability insurance to cover any accidents or damages during the project. However, double check this information with your contractor, and if necessary, require them to provide proof of insurance.

5. Payment Terms and Invoicing

Establish clear payment terms in your contract, including the rate, payment schedule, and method of payment. Most independent contractors invoice for their services, so get yourself familiar with invoicing practices and ensure you have a streamlined payment process in place.

6. Compliance with Labor Laws

While independent contractors have more freedom than employees, you must still ensure compliance with labor laws. To avoid legal issues stemming from knowledge gaps, refer to the labor laws of your industry and location. Make sure your contract terms exactly cover the standard minimum wage, working hours, and safety regulations.

7. Maintaining a Professional Relationship

It's essential to maintain a professional and respectful relationship with your independent contractors. Clearly communicate expectations, provide necessary resources, and offer feedback constructively. A positive working relationship can lead to better results.


Hiring independent contractors can be a mutually beneficial arrangement for both parties involved. By understanding the legal distinctions, tax implications, and other crucial aspects, you will grasp what to know when hiring independent contractors. 

Always aim to educate yourself on these matters to bridge any knowledge gaps and build strong, professional relationships with your contractors. When done right, hiring independent contractors can contribute significantly to your business's success, especially when coupled with headhunting platforms like Recruitery!