As a small business owner, you have to take care of all your company’s tasks. Your responsibilities can get overwhelming. To help you complete tasks, you may want to try working with freelancers.
Freelancers have specialized skills. Delegating some tasks to freelancers allows you to work on revenue-generating tasks. For example, you might hire a freelancer to update your company’s website.
Unlike employees, freelancers work on a per project basis. You hire them to do work when you need them, and they leave when they finish the job. The flexibility of working with freelancers can help you grow your company.
Budgeting for freelancers
When working with freelancers, you are in control of the amount of money you spend on projects. Before working with freelancers, figure out your budget.
Talk to the freelancer about your budget before they begin work. Make sure you sign an agreement that outlines the project’s budget and payment due dates.
Since you hire freelancers on an as-needed basis, you have less overhead expenses than hiring an employee. Payroll expenses are overhead costs. With freelancers, you don’t pay for benefits, employer payroll taxes, and workers’ compensation.
Usually, you pay freelancers per project instead of per hour. For businesses that don’t need consistent help, freelancers can be cost effective.
Freelancers and taxation
A freelancer is an independent contractor, not an employee. You do not pay or withhold payroll taxes for freelancers. Payroll taxes include Social Security tax and Medicare tax. Instead, the freelancer pays self-employment tax.
Have each freelancer fill out Form W-9. You will use Form W-9 to fill out IRS Form 1099 when you report wages paid to contractors. You use Form 1099-MISC to report non-employee wages you paid to the IRS. You also send Form 199-MISC to the freelancer.
You can create and track as many 1099s as you need (we don’t charge extra).
Keep Form W-9 on file. If the IRS audits you, the form shows that the freelancer worked as an independent contractor.
It’s important for you to stay compliant with laws for working with freelancers. Independent contractor vs. employee classification of workers can make a big difference in your taxes. You don’t want to misclassify an employee as a freelancer, because you could have to pay back taxes, lost wages, and penalties.
Where to find freelancers
There are several ways to find freelancers. Two places you can search are freelance websites and through your network.
Many freelancers post their services on the internet. Some websites specialize in specific industries. For example, you will want to search a website that lists freelance writers if you need new marketing copy.
You can also ask your peers if they know any freelancers available. Other small business owners may have worked with freelancers and can give you feedback.
Working with freelancers
Working with freelancers can offer many benefits to your business. You save time and money by hiring freelancers.
But, there are several things to keep in mind when working with a freelancer. Here are some tips to help you out:
- Outline the freelancer’s project in a written agreement. List your expectations and make sure you and the freelancer sign the agreement.
- Don’t control how the freelancer completes the work. For example, you can set deadlines for the project. But, you can’t tell the freelancer which hours to work. You also can’t tell freelancers how to perform the job. If you have control over the freelancer, they might be considered an employee by the IRS.
- Do your research before working with a freelancer. Try to find feedback from past clients. Be sure the freelancer can complete the project before entering an agreement.
Do you need an easy way to keep track of payments to freelancers and vendors? With Patriot’s online accounting software, you can pay vendors and create 1099s. Try it for free today!
This article is updated from its original publication date of August 25, 2016.
This is not intended as legal advice; for more information, please click here.