Payroll Services

By Eric Michaels

It might seem as if hiring freelancers is the answer to many business problems, but you cannot ignore the big issues surrounding independent contractors. In fact, proper freelance management requires a clear understanding of the latest tax laws, as well as an accurate definition of what "freelancer" really means. Should your business make mistakes in this department, you could end up owing huge sums in back taxes. A payroll services company is well-versed in these definitions and legal requirements, so it might be ideal help for managing your freelancers.

Freelancers give a boost to growing companies

Busy work periods necessitate more staff members, yet there is no way of knowing how long your business will need them. In such a situation, it makes sense to take on freelancers until your company figures out the long-term staff needs.

To that end, you may need to hire up to 20 employees or more to accommodate the uptick in workload. However, freelance staffers must be distinguished from full-time employees in more ways than their paychecks and benefits.

The IRS has cracked down on countless companies that tried to pass off employees as freelancers. To get an idea of the kinds of things you need to be aware of, it's helpful to review the IRS guidelines on the subject. There is Form SS-8, which can be filed and sent to the IRS, to define the nature of business relationships with workers.

For example, if a worker must follow company guidelines, report to company supervisors, and delivers important work for your business, you may have a full-fledged employee on your hands, whether or not they are paid benefits. You'll end up responsible for paying back benefits (as well as back payroll taxes) should you stretch the bounds too far. While hiring freelancers can be a huge help, a payroll services company is often necessary to make sure you steer clear of this kind of trouble.

Reporting taxes for freelancers

When the payroll company has determined the contractors delivering services are indeed not employees, they send out a W-9 form supplying tax identification information, and a 1099 form at year's end to indicate their earnings from your company. Amounts above $400 must be reported, though the burden falls on the freelancer. Your company is not responsible for payroll taxes, benefits, or other obligations employees receive.

It is no secret that federal, state, and local government agencies need tax revenue badly right now. For that reason, it is important to manage a freelance staff to the letter of all guidelines. Payroll services can help you by examining relationships with your staff, so your business won't be responsible for costly penalties and back tax obligations.

Audits can disrupt a medium- to large-sized company, on top of draining its cash flow. To avoid these hassles, have payroll companies help with freelance management. It's always better to be in full compliance from the start.