Electronic Signature Lawfulness for Independent Contractor Agreement in Australia

How to eSign a document: electronic signature lawfulness for Independent Contractor Agreement in Australia

still in the wake of the great resignation many employers are just becoming increasingly dependent on independent contractors in order to stay productive in the face of temporary staffing shortages some companies like grubhub or uber built their businesses on gig workers from the very beginning even as more organizations rely on the practice the status of independent contractors is a hotly debated issue in the department of labor it's been especially controversial since the biden administration withdrew a trump-era rule that made it easier for gig companies to classify workers as independent contractors in order to deny them benefits and other employment protections in this contentious context it's more important than ever that employers who rely on freelancers remain compliant so in this episode of hr party of one we'll cover how to write a policy for hiring independent contractors and how to pay them by the end you'll have a better understanding of how to make the gig economy work for your organization we'll discuss what is an independent contractor how to write an independent contractor policy and how to pay independent contractors so let's dive right in what is an independent contractor an independent contractor is a self-employed individual or organization that provides services to other individual or organizations under terms laid out in a contract by definition contractors are not employees an organization might pay an employee and an independent contractor for the same or similar work but ing to the irs if an organization has the legal right to control the details of how services are performed then an employer employee relationship exists independent contractors typically have the flexibility to make their own schedules and to work for multiple organizations simultaneously freelancers tend to have the most flexibility to work how when and where they wish whereas gig workers are typically dependent on an online platform which can be more limiting but the irs and department of labor only distinguish between employees and independent contractors not different types of contractors pros of hiring independent contractors for example unlike employees freelancers are not protected by employment and labor laws such as the fair labor standards act or flsa gig workers are also ineligible for most of the benefits and perks offered to full-time employees that's one of the reasons employers like to use contractors another reason is employers are required to withhold payroll taxes from employee paychecks but independent contractors are responsible for withholding and paying their own self-employment taxes including social security and medicare many employers use independent contractors for special projects greater convenience and the lower costs associated with the contracted relationship for this reason many employers like to test drive potential employees by hiring them on a contract basis before an offer of employment similarly freelancers can help employers stay productive and profitable when it's difficult to fill key positions of hiring independent contractors but of course not every employer hires independent contractors employers have less control over contract workers and the contract relationship is temporary by nature so it can be difficult to manage freelancers train them and hold them accountable finally since full employment requires compliance with countless federal and state laws some employers may be tempted to classify some employees as contractors to avoid the legal risk but misclarification deliberate or not can be very costly that's why every organization needs a clear and specific policy to guide contracting decisions how to write an independent contractor policy let me say it again since independent contractors are not protected by employment law and are often ineligible for benefits employers are at risk of non-compliance when they misclassify employees as contractors deliberately or not the problem is that the distinction between independent contractors and employees is not always clear in fact ing to the department of labor or dol the u.s supreme court has on a number of occasions indicated that there is no single rule or test for determining whether an individual is an independent contractor or an employee for purposes of the flsa the court has held that it is the total activity or situation which controls still the dol highlights the following factors which the supreme court has considered to be significant in determining worker classification number one the extent to which the service is rendered are an integral part of the principal's business number two the permanency of the relationship number three the amount of the alleged contractors investment in facilities and equipment number four the nature and degree of control by the principal number five the alleged contractors opportunities for profit and loss number six the amount of initiative judgment or foresight and open market competition with others required for the success of the claimed independent contractor and number seven the degree of independent business organization and operation during the final days of the trump administration the dol issued a ruling that was designed to implement an economic reality test to determine the independent contractor status of a worker the classification would have made it easier for employers to classify workers as independent contractors after a change in presidential administrations though the rule was permanently withdrawn in may 2021 the society of human resource management or sherm notes that even though no brightline test exists to determine worker classification a wealth of information is readily available to help organizations make the necessary case-by-case determinations check out sherm's independent contractor resource center for a much more detailed guide to proper classification with this in mind if your organization currently hires freelancers or gig workers or plans to hire them in the future you should have an independent contractor policy in place to stay compliant and consistent your organization's independent contractor policy should be added to your culture guide or employee handbook and include a requirement that all contractors sign an agreement that stipulates the details of their relationship with the employer including names and locations of your organization and the contractor services rendered and responsibilities of the company to the contractor and vice versa and compensation including how the contractor will be paid and when length of contract term language asserting the contractors independence over how services will be performed and a provision clarifying the contractor's responsibilities to provide their own tools and equipment to help you in writing an independent contractor agreement i've linked to a downloadable sherm template in the description in addition to requiring a signed agreement your policy should also include other procedures such as a requirement that managers coordinate with hr when hiring contractors a requirement that all contractors complete form w-9 which i'll link to in the description an example of how your organization will use the contractor's personal data and how the contractor should protect company and client data a reminder that the organization may track time for billing but may not dictate a contractor's schedule and any relevant information required by state law hiring independent contractors can help your organization solve temporary staffing issues and may even become a long-term approach to meeting productivity needs but it's important to make sure that non-compliance doesn't lead to more hassle or worse penalties so once you've hired a contractor and they've satisfied the terms of the contract how do you pay them how to pay independent contractors as i've mentioned employers are not required to withhold taxes or provide benefits to independent contractors which makes paying them a much simpler process than running payroll for a deeper dive into running payroll and withholding taxes check out our recent episodes on those topics i'll link to them in the description still there are a few things employers need to consider when paying contractors even though you're not required to withhold taxes from freelancers generally speaking you must still report annual payments totaling 600 or more to the irs as i've mentioned earlier when you first hire a contractor you need to give them a copy of form w-9 to complete and return form w-9 is simply a way for employers to collect and verify a contractor's taxpayer identification information or tin for individual taxpayers their tin will be their social security number for businesses contracting with your organization their tin will be their employer identification number or ein employers use form w-9 to generate a form 1099 for each contractor similar to how you would use form w-4 to generate a form w-2 for each employee there are many types of form 1099 but since 2020 employers have used form 1099-nec to report non-employee compensation to contractors as with form w-2 employers must distribute form 1099-nec to workers by january 31st each year for the previous year's compensation i'll link to a copy in the description remember even though employers are not required to withhold taxes independent contractors are still required to pay them using forms 1099 nec some freelancers have attempted to avoid reporting income for the sale of goods and services by using third-party apps such as venmo and paypal but as a part of the american rescue plan the irs recently announced that those payment processors will be required to report commercial transactions totaling 600 or more starting in the 2022 tax year earners meeting those conditions will receive a form 1099 k to report that income in the next year hiring independent contractors can be an excellent solution to some of your organization's staffing strains but you don't want to make a bad situation worse know the law write a policy and staff your teams ingly consistency is the key to compliance especially when it comes to contractors as always remember that your role is as strategic as you make it [Music] that's all the time we have for this episode don't forget to subscribe to our channel and ring the bell to get notifications about the latest hr party of one updates and new episodes also join our hr party of one group on linkedin