Should I Hire a 1099 Contractor or W2 Employee? 6 Questions to Ask

By MBO Partners | September 7, 2022

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Key Points

It is important for companies to take a step back and ensure that an independent contractor is the best match for the work they need to be done.

The wrong match can lead to worker misclassification or other risks.

When engaging independent contractors, having a written contract that includes a clear Scope of Work (SOW) is a key best practice.

By engaging independent contractors, organizations can realize many benefits—from significant financial savings and staffing flexibility, to access to specialized skills and expertise. Independent talent can be a great way to test out new services, lay the foundation for a new business unit, or implement a new technology system.

But in order to avoid risk, ensure a successful engagement, and take advantage of these benefits, it’s first important for companies to take a step back and ensure that an independent contractor is the best match for the work they need to be done. While many projects and ideas are conducive to independent contractor talent, the wrong match can lead to worker misclassification or other risks. When considering whether or not you should hire an independent contractor for your next endeavor, think through the following.

1. What Are Your Specific Project Needs?

Projects are an ideal way to maximize independent professional talent. A project has clearly defined success metrics and should be something that you can structure a specific deliverable around. By using independent talent for a project, you can keep internal teams focused on the core goals of your business.

However, if the work you’re looking to have completed is more along the lines of an ongoing business need, you may want to consider hiring a full-time employee instead.

2. How Much Control Are You Willing to Give Up?

One key component to independent contractor classification is control. When you work with an independent contractor, you enter into a business-to-business relationship. Independents must maintain a certain degree of autonomy. They are responsible for performing the work outlined in their contract, and you, as a client, cannot interfere with their work too much, or you risk treating them like an employee.

Independents bring their own skillsets, experience, and problem-solving approaches to the projects they take on. They are responsible for performing the work outlined in their contract, and you, as a client, cannot interfere with their work too much, or you risk treating them like an employee.

3. What Skills Do You Need?

Most independents have a high level of specialization in their professions and are experts in their field, making them a great resource to tap into when you have a project that requires an in-demand skill. If the work you’re looking to have done is more general, or could be performed by someone you already employ, you may want to assign an internal employee.

4. What Type of Work Do You Need Done?

When you engage an independent contractor to perform the same work as an employee, you can put your company at risk for misclassification. To steer clear of this risk, make sure you have a legitimate need for extra help for a finite period of time before hiring an independent contractor for this type of work. Remember, as their own business, independents should provide their own equipment, set their own hours, and direct how and when they work unless otherwise specified in their contract.

5. Can You Clearly Define Deadlines and Deliverables?

When engaging independent contractors, having a written contract that includes a clear Scope of Work (SOW) is a key best practice. These documents clearly outline the specific work to be done as well as payment terms, a communication plan, and deadlines and deliverables. This is very important in defining a client-contractor relationship and can help your company avoid misclassification risks.

6. Does the Project Require a Lot of Oversight?

If a project requires a lot of internal oversight and supervision, you may be better served to use a permanent employee in this position rather than an independent contractor. Ask yourself: is this level of control really necessary, or is it just a comfort you want to have in place?

When you engage an independent contractor, it doesn’t mean that you can’t have any input or guidance. When writing a contract, define what constitutes a successful deliverable for each milestone throughout the project lifecycle. This way, the contractor will be able to structure their work to meet these goals in the way that works best for them, and you’ll know what to expect along the way.

Remember, independent contractor engagement doesn’t have to be complicated; you just have to be smart in how you manage and work with this valuable talent pool.

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