Can a New Proposed Law Impact Your Contractor Payments?

[Fit Small Business | ]( Payroll Insights from Our Experts Welcome to this week's HR newsletter. We’re so happy to have you! Business owners who employ independent contractors may find themselves changing how they classify these workers. The Biden Administration released a [proposed rule]( at the end of 2022 that could classify some independent contractors as employees instead. In today’s newsletter, we break down everything you need to know—from defining an independent contractor and how small business owners can effectively hire and pay them to how this new law can impact how you work with contractors.   What is an Independent Contractor?   Let’s start by getting a good understanding of what an independent contractor really is and how your business can utilize contract work to accomplish its goals. Currently, the Internal Revenue Service (IRS) classifies a worker as an independent contractor if the payer (or business owner) only directs the result of the work—not how the work is done. These workers are typically paid per project or hourly and don’t receive standard healthcare and retirement benefits that employees are entitled to. Hiring Contractors If your small business could benefit from utilizing independent contractors, you'll first need to identify the work that needs to be done and decide on the qualifications a contractor needs to perform the job successfully. You’ll then need to follow the rest of these guidelines to successfully hire an independent contractor: 1. Write a Job Description 2. Search for Contractor Candidates 3. Screen for Best Candidate 4. Request Quotes From Each Contractor 5. Interview Top Independent Contractor Applicants 6. Extend an Offer & Prepare Independent Contractor Agreement 📌 If you’re interested in learning more, including information about misclassifying workers and new hire reporting for contractors, check out our [complete guide to hiring independent contractors](. Paying Contractors Paying independent contractors is simpler and often cheaper than paying employees because employers don't have to withhold or pay taxes. You’ll want to generally follow these steps to effectively pay contractors: 1. Determine How to Pay Contractors (Rates, Frequency, Taxes, etc.) 2. Collect W-9 Forms 3. Set Up Contractors in Your Payroll System 4. Process Payments to Contractors 5. Issue Tax Forms 📌 If you’re interested in learning more about these steps, plus laws for paying contractors that you’ll need to be aware of, check out our [complete guide to paying independent contractors](. Tax Filings for Contractors Businesses don’t need to withhold and file taxes for contract workers—the contractors handle these themselves. However, employers should prepare Form 1099-NEC to report payments made to contractors who earn $600 or more in a tax year. 📌 If you need help managing 1099 forms, check out our [Form 1099 reporting guide]( for small businesses.     How Will the Proposed Rule Impact Employee Classification?   The [rule change proposed by the U.S. Department of Labor]( in October 2022 would reclassify workers as economically dependent on a company. Generally, independent contractors can earn a living from multiple sources at once. If a contractor is economically dependent on a single company, however, they will most likely be classified as an employee. Small businesses and those in the restaurant, transportation, construction, and healthcare industries will feel the brunt of this proposed rule change, as these companies typically hire contractors. If this proposal becomes law, employers can expect higher labor costs as they’ll need to provide benefits to these former contract workers who may be newly classified as employees. It could also lead to expanding their [in-house HR]( and operations teams to help manage these workers.     What Can Employers Do to Prepare for this Potential Change?   While this proposed rule is still being reviewed, it’s best to make the necessary preparations in case it becomes law. Below are some tips to help weather the potential change: - Take stock of your current and planned headcount and check how many contract workers you have that may be classified as employees with the proposed rule change. - Do initial labor cost calculations to see the potential increase in payroll and benefits expenses and how this will impact your business costs. - Assess your business model, as you may need to shift away from only hiring contract workers and start hiring more employees. - Don’t panic! Maintain the status quo, ensuring you’re paying all your workers accurately and on time and not [misclassifying employees and contractors](.     If you foresee an increase in headcount and need a secure solution to pay workers—be it employees or contractors—consider getting a payroll system like QuickBooks Payroll that comes with compliance and automation tools. In addition to its unlimited pay runs, automatic tax calculations, and user-friendly interface, QuickBooks Payroll monitors and updates federal and state payroll taxes to ensure you’re always up to date with the latest regulations. Its solid pay processing solution is also one of the reasons it’s on our list of [best payroll services]( for small business users and our [top pick for contractor payments](. [Visit Intuit QuickBooks Payroll](   What’s Hot In HR This Week Check out some of our latest HR content:   [How to Pay International Contractors—An Ultimate Guide]( Working with non-US contractors can give your company many advantages. In this guide, you’ll learn how to pay international contractors. [READ MORE]( [Best Payroll Software for Small Business Users]( The best payroll software for small business users is affordable, calculates employee wages and deductions accurately, and pays and files payroll taxes automatically. This guide evaluated more than a dozen solutions and narrowed the list down to our top nine recommendations. [READ MORE](     Meet Fit Small Business’ HR & Payroll Experts   [-Jennifer Hartman, HR Staff Writer & Human Resources Expert] Throughout her career, Heather has worked to help hundreds of small business owners manage many aspects of their business, from bookkeeping to accounting to HR. Her experience has allowed her to learn firsthand the payroll needs of small business owners. Heather Landau [-Jennifer Hartman, HR Staff Writer & Human Resources Expert] Jen has more than 20 years of writing and content experience, working with small businesses and Fortune 100 companies. She worked as an HR generalist for over a decade, providing accounting, payroll, and HR expertise. Jennifer Soper [-Jennifer Hartman, HR Staff Writer & Human Resources Expert] Robie is a payroll and HR expert at Fit Small Business, focusing on software. She has more than five years of content writing experience. Before becoming a writer, she worked as an HR specialist at several multinational companies. Robie Ann Ferrer [-Jennifer Hartman, HR Staff Writer & Human Resources Expert] Juvy has more than 10 years of experience writing product reviews and providing online content for small businesses. Juvy was also a college instructor. She believes that her teaching background, writing experience, and supportive team members are crucial in providing the best answers to readers. Juvy Vallescas [-Jennifer Hartman, HR Staff Writer & Human Resources Expert] Genevieve has more than 13 years of writing experience, working with different clients in various industries. She has ghostwritten several books and ebooks on marketing and leadership. Genevieve also worked as an HR Head of a local manufacturing company and has helped small businesses set up their business and HR processes. Genevieve Que If you’d like to learn more about using social media in the workplace, watch for our next HR newsletter!     Until next time, Heather Landau, Jennifer Soper, Robie Ann Ferrer, Juvy Vallescas, and Genevieve Que   For more quality resources on growing your small business: [Marketing]( | [Financing]( | [Accounting]( | [HR]( | [Retail]( | [Ecommerce]( | [Sales]( [Facebook]( [Twitter]( [LinkedIn]( [Alternate text] Want to change what you receive in your inbox? [Update Your Preferences]( [Image]   We spend hours researching and writing our articles and strive to provide accurate, up-to-date content. However, our research is meant to aid your own, and we are not acting as licensed professionals. We recommend that you consult with your own lawyer, accountant, or other licensed professional for relevant business decisions. 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