Employee issues: Hiring contract workers

Hiring a contract employee can help a small business reduce its payroll obligations and gain experienced assistance. Contract employees tend to have specific skills, whether it is computer systems or business administration. They can be hired for a specific short-time job, or for one that could take years, such as setting up a network system.

These advanced skill levels mean that contract employees tend to be paid more than regular temps.

The job they perform should be outlined in a contract or agreement that makes clear they will not stay with the company beyond the scope of the job. As self-employed workers, they are responsible to pay their own Social Security and income tax through estimated tax payments and personal returns.

Be aware that a mistake in employee classification could cost you. For example, if you have been handling a worker as an independent contractor, then learn the IRS classifies that person otherwise, it could mean paying thousands in back payroll taxes.

To avoid that kind of snafu, read IRS Publication 15-A, The Employer's Supplemental Tax Guide -- available online in PDF format -- to understand the federal government's distinctions between an employee and an independent contractor.