Hiring independent contractors involves less paperwork than bringing on full-time employees, but the few documents you do need are essential. These papers form the basis of your working relationship and help ensure compliance with tax regulations.

It's best to collect these documents at the beginning of your partnership with a contractor. Getting the necessary forms and signatures is much easier when you're just starting a project and in regular communication. Try chasing down signatures or tax forms months later when the work's done and your contractor has moved on to their next gig – now that's a headache you don't need.

Let's explore the key documents you should have in place when working with independent contractors. By taking care of these upfront, you'll set yourself up for a smoother, more organized working relationship.

W-9 Form (for US contractors)

The W-9 is crucial for US-based contractors. It provides their Taxpayer Identification Number (TIN) and confirms they're not subject to backup withholding. Collect this before making any payments. Contractors can fill it out electronically or on paper. This form helps you accurately report payments to the IRS and issue 1099 forms at year-end.

You don't need to file this form with the IRS - it's for your records. If a contractor refuses to provide a W-9, you may need to withhold 24% of their payments as backup withholding.

W-8BEN or W-8BEN-E Form (for non-US contractors)

These forms certify a contractor's foreign status and potential eligibility for reduced tax withholding. The W-8BEN is for individuals, while the W-8BEN-E is for entities. Obtain this before paying foreign contractors. It helps determine if you need to withhold taxes on payments and at what rate, based on tax treaties between the US and the contractor's country.

These forms can be confusing for contractors. You might need to guide them through the process. The forms are valid for three calendar years unless there's a change in circumstances that makes the information incorrect. Keep track of expiration dates and request updated forms when needed. Remember, these forms don't guarantee you don't need to withhold taxes - always consult with a tax professional about your specific situation.

Independent Contractor Agreement

An Independent Contractor Agreement is a crucial document that formalizes the business relationship between your company and the contractor. Here's a deeper dive into its importance and key components:

Key components to include:

1. Scope of Work: Clearly outline the specific services the contractor will provide. Be as detailed as possible to avoid ambiguity.
2. Project Timeline: Include start dates, end dates, and any milestones or deadlines.
3. Payment Terms: Specify the rate (hourly, project-based, etc.), payment schedule, and method of payment.
4. Independent Contractor Status: Explicitly state that the individual is an independent contractor, not an employee. Include language that emphasizes their autonomy in how they complete the work.
5. Intellectual Property Rights: Clarify who owns the work product. Typically, the company retains ownership of work created for them.
6. Confidentiality Clause: Protect your company's sensitive information.
7. Termination Conditions: Outline how either party can end the agreement and under what circumstances.
8. Liability and Indemnification: Protect your company from potential legal issues arising from the contractor's work.
9. Equipment and Expenses: Clarify who provides necessary tools and who covers any project-related expenses.
10. Dispute Resolution: Specify how disagreements will be handled (e.g., arbitration).

Form SS-8

This form is used to determine a worker's status for federal employment tax and income tax withholding purposes. As a founder, you might file this if you're unsure whether a worker should be classified as an employee or an independent contractor. The IRS reviews the information and makes a determination. It's a complex form that asks detailed questions about the nature of your relationship with the worker.

Filing this form can take several months to get a response, so it's not a quick solution. Be aware that filing an SS-8 might trigger closer scrutiny of your business practices. It's often used as a last resort when classification is unclear, or if there's a dispute with a worker about their status.

1099-NEC Form

You'll need to issue this form to US contractors who receive $600 or more in a calendar year. It reports non-employee compensation to the IRS and the contractor. Keep copies for your records. This form is crucial for tax reporting and helps contractors accurately file their taxes.

You'll need to file the 1099-NEC form with the IRS as well as send them to contractors. The deadline is typically January 31, but verify each year as it can change. Late filing can result in penalties. If you're using a payroll service like Thera, they often handle 1099 preparation and filing. However, you're still responsible for ensuring accuracy, so always review before they're sent out.

Certificate of Insurance

For certain types of contractors, especially those performing on-site work, request a certificate of insurance. This proves they have appropriate liability coverage. Collect this before work starts and keep it updated annually. It protects your company from potential liability if the contractor causes damage or injury while performing work for you.

For high-risk work, you might want to be named as an additional insured on the contractor's policy. Set reminders to check for policy renewals. Some founders overlook this for remote workers, but it can still be important for certain types of work, like software development that could potentially cause data breaches.

You only need this one tool to make contractor hiring easy

Thera is a global hiring & payroll platform that takes the stress out of hiring contractors — whether they're based locally or globally. Thera helps you create contractor agreements that check all the legal boxes, no matter where your new team member is based. We'll guide you through collecting the right paperwork and licenses, so you can feel confident you're doing everything by the book.

When it comes to paying your global team, we've got options. Whether you're sending money to Tokyo or Toronto, we make sure it's quick, secure, and hassle-free.

Want to see how we can help your team grow without the growing pains? Let's chat. We'd love to show you around and answer any questions you might have.

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