Understanding the Legal Status of Independent Contractors

Did you know that your freelancers need to be able to demonstrate their legal business status?

No?

Today, I’ll be getting you up to speed on what their legal business status is, how it can be verified, what you need for proper records, and why it’s important for your business.

So, bring out a notepad and a pen, and prepare to take some notes. Class is in session…

What does legal status mean?

Legal status refers to your independent contractor’s ability to demonstrate their business status, additional sources of income, and insurance coverage.

In other words, proof that they identify as a business entity and do not rely on you as an ‘employer’.

What documents can support a freelancer’s legal status?

Your freelancer should be able to show that they have:

• A variety of different clients or projects

When Barbara Business-Owner hired Frank Freelancer, she asked him to detail the other clients that he works with. By presenting this information, Frank Freelancer reinforced that he had additional sources of income as well as the independent nature of his work.

• Documentation that proves they have a legal business entity

This includes documents such as business licenses, tax registrations, or permits. Independent contractors operate as a business, so documentation that shows that they are a legal business entity supports their independent contractor classification.

• Appropriate insurance coverage

A contractor without the correct liability insurance puts your business at risk. Therefore, an independent contractor who has appropriate insurance coverage demonstrates their commitment to risk management and supports their status as an independent entity.

Build a File of Independent Contractors Documentation

Have a plan to collect these documents, you can request from your freelancers upon engaging in contracts. Having all these documents stored correctly, and ready to go can help defend audits, or even speed the auditing process along.

So you’re on your own now…

No– I wouldn’t do that. Classifying workers is as easy as breathing. But correctly classifying your workers is where problems start to arise.

You will need to take a fine-tooth comb and look through your business and its relation to your workers. And trust me, I understand how overwhelming the process is.  I’d even go as far as to say to create a checklist to ensure that you have the mentioned documents.

“Where would I even begin?”

Great question. So, allow me to take the burden off your shoulders.

Use a tool such as ClearIC  to ensure Independent Contractor compliance and build a case Defense File to have on hand in the case of an audit.

The benefits of ClearIC are not only documentation but also the advantage of experts to review and advise your current worker status.

And I’d love to guide you through the process of integrating ClearIC for your business!

During our consultation, we will take a look into your relationship with your workers and determine if you need to make any changes. We will offer you tailored advice on your compliance and how ClearIC can help you in the case of an audit.

Contact us today to prevent an audit tomorrow!

ClearPath is a leading Human Resources Outsourcing company focusing on assisting employers to leverage the independent contractor labor market. We’re committed to helping business owners stay compliant and minimize the risks associated with their contingent labor requirements. Contact us today to make an appointment.

No Legal Advice Intended. This article includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal issues.