Hiring an independent contractor: Free checklist

Independent contractor checklist

Hiring an independent contractor can offer flexibility and specialized skills, but it’s crucial to ensure they are correctly classified to avoid legal risks. This independent contractor checklist guides you through the necessary steps to properly engage independent contractors while maintaining compliance with tax and labor laws.

By following this independent contractor checklist, you’ll cover all bases, from confirming the contractor’s business setup to ensuring that their work remains truly independent from your company’s operations. This helps prevent misclassification issues that could lead to significant financial penalties.

How to use this independent contractor checklist

Here’s how to effectively use this independent contractor checklist:

• Follow the steps thoroughly: This checklist guides you through every stage of the process, from verifying the contractor’s business entity to managing the relationship. Use it as a blueprint to ensure compliance and avoid misclassification risks.
• Tailor the checklist to your needs: While the checklist is comprehensive, adjust it to fit your specific project requirements, industry, and the contractor's unique circumstances. Make sure to address both legal obligations and operational needs.
• Engage the right departments: Involve key departments like HR, finance, and legal to ensure that contracts, payment terms, and legal documentation are aligned with company policy and current regulations.
• Track progress: As you move through the checklist, mark off completed items to ensure you don’t miss any critical steps. This helps keep the process organized and prevents oversight.
• Review and update regularly: Independent contractor laws and regulations can change, so be sure to review and update your checklist regularly. Keep your contractor relationships compliant with any new legal requirements to avoid potential misclassification issues.

Checklist

Confirm business entity and documentation

[ ] Verify business registration by reviewing a current business certificate, license, or registration in the contractor's name or their business name.

[ ] Obtain the contractor’s EIN or Social Security number for sole proprietors.

[ ] Confirm that the EIN is correct to avoid backup withholding.

Evaluate the contractor’s operational independence

[ ] Check if the contractor operates from a dedicated business location (home office, rental, or leased space).

[ ] Confirm the contractor has a business phone number, website, or email specific to their business.

[ ] Ask if the contractor has separate business bank accounts for financial transactions related to their work.

Review professional licenses and insurance

[ ] Collect relevant professional licenses or certificates held by the contractor.

[ ] Ensure the contractor carries sufficient insurance such as general liability or workers’ compensation insurance, if applicable.

Tax and financial records

[ ] Review the contractor’s tax documents, including Schedule C, to confirm tax payments.

[ ] Ask for documentation of the contractor’s employees, such as unemployment insurance information.

Evaluate the contractor’s resources

[ ] Ask for a list of tools, equipment, vehicles, or facilities owned or rented by the contractor for business operations.

[ ] Confirm if the contractor has filed for workers’ compensation or unemployment benefits.

Confirm advertising services to the public

[ ] Collect evidence that the contractor offers services to the public.

[ ] Social media posts and ads.

[ ] Newspaper, radio, or TV advertising.

[ ] Listings on directories like Yelp or Angi.

[ ] A dedicated business website.

[ ] Promotions, coupon codes, or sales offers.

[ ] Verify contractor has active business accounts on platforms like Facebook, Instagram, X (Twitter), TikTok, Pinterest or LinkedIn.

[ ] Collect examples of stationery and branding materials, such as letterhead, business cards, or novelty items.

[ ] Ask for invoices, bids, or bills showing payment for services provided to other clients.

[ ] Collect testimonials, customer reviews, and references demonstrating work for multiple clients.

[ ] Obtain evidence of payments from other clients, including IRS Form 1099s from previous clients.

Confirm control over work responsibilities

[ ] Verify responsibility for hiring or delegating work to employees or assistants.

[ ] Confirm that the contractor sets working hours for themselves and any assistants.

[ ] Ensure compliance with employment standards, including wage and hour laws and immigration requirements.

[ ] Confirm required licenses, certificates, and permits are held and maintained.

[ ] Ensure contractor sets their own pricing and is paid by the project.

[ ] Verify ownership or rental of tools and supplies needed for the project.

[ ] Ensure full control over work performance, with the company only reviewing the final product.

Use appropriate agreements and documentation

[ ] Use an independent contractor agreement instead of employee documents.

[ ] Review and update contractor agreements regularly, preparing new agreements for each engagement.

[ ] Avoid rehiring former employees as contractors for the same role or work.

Ensure contractors are truly independent

[ ] Do not assign integral business tasks to contractors.

[ ] Require completion of Form W-9, not W-4 or I-9.

Payments and benefits

[ ] Pay by project or flat fee, and process payments through accounts payable.

[ ] Avoid reimbursing contractor expenses—contractors manage their own costs.

[ ] Do not offer employee benefits; obtain waivers if needed.

Workplace and security

[ ] Do not set schedules or appearance standards for contractors.

[ ] Issue distinct ID badges and limit access to restricted areas.

[ ] Create separate contractor guidelines rather than sharing employee handbooks.

Independence and autonomy

[ ] Limit training to premises access and safety procedures.

[ ] Keep contractor files with vendor records, not employee files.

[ ] Do not include contractors in employee-only events.

[ ] Avoid issuing company business cards or titles to contractors.

Managing performance

[ ] Treat performance issues as contractual matters, not disciplinary matters.

[ ] Do not conduct performance reviews or involve HR in contractor performance.

Regular audits and industry practices

[ ] Conduct regular audits of contractor arrangements and agreements.

[ ] Watch for misclassification risks due to industry-wide practices.

[ ] Avoid using contractors to bypass hiring freezes.

Benefits of using an independent contractor checklist

Using an independent contractor checklist ensures your business remains compliant with legal requirements and avoids costly misclassification issues. Here’s how it benefits your organization:

• Legal compliance: The checklist helps ensure you meet all federal, state, and local regulations when hiring independent contractors, reducing the risk of fines or penalties for misclassification.
• Clear documentation: It provides a structured approach to collecting and verifying important documents, ensuring you have the necessary proof to support the independent contractor classification if ever challenged.
• Operational consistency: Following a standardized checklist ensures that your company handles contractor engagements the same way each time, preventing errors or oversights that could lead to legal or financial issues.
• Risk management: By clearly defining the contractor’s role and responsibilities, the checklist minimizes the risk of inadvertently creating an employment relationship, which could expose your business to liability.
• Efficiency: A well-organized process saves time and effort by streamlining the onboarding and management of contractors, ensuring nothing is missed and helping to maintain productive working relationships.

Frequently asked questions (FAQs)