December 23

Ways to Improve Your IndependentContractor Business Model: Part 1

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Nearly every business will benefit from considering an independent contractor business model. Using ICs may indeed expose your company to the risks of regulatory inquiries and claims, but by carefully structuring your IC business model, you can reduce your risk while maximizing your potential for IC profitability. The following tips will help you to attract profitable ICs with whom you can form long-term business relationships. These tips will also help to mitigate your risk of inquiries and claims from using ICs.

Tip 1: Pay Them Well.

At first glance, this may seem like a bad idea because a chief reason for using ICs is to minimize your business expenses. However, you should recognize that the valuable work that your ICs will do for you comes at a major cost to them. ICs are not granted benefits such as health care, which means that they must find ways to afford benefits on their own. They are also usually expected to pay for their own business costs, such as their phone, internet, or computer. Factor these things in and pay them well so that they can more feasibly manage their expenses. If you even offer a CONTINGENCY REWARD PROGRAM for things like meeting safety standards and a high percentage of on-time deliveries, you will increase their desire to make more money. Thus, you in return will realize a more significant return on your investment.

Tip 2: Pay for Results, Not Time.

Paying your ICs for their time instead of their results presents several complications, one of which is that paying by the hour lends itself to employment status. Also, since most ICs work remotely, it is difficult to monitor their time, making it easier for less than desirable ICs to take advantage of you. Results-driven ICs are far more likely to utilize their time effectively, thus, leading to more fruitful results. In addition, paying for a specific project, a sale, an event, or other measurable result ensures that you know exactly what your team of ICs will cost you.

Tip 3: Create a Clear Contract for You and Your ICs to Sign.

It’s always best to be prepared in case the worst should happen, and establishing a clear contract with your ICs will help to protect you if there are ever any problems down the line. This contract could spell out exactly what your ICs are responsible for and what the customer expectations are.  A carefully crafted contract should not get you in trouble. While our regulators and case law imply that it’s really substance over form, the fact is that if you have a poorly written IC Agreement, it could be used to overshadow how your company actually interacts with the ICs. A poorly written IC Agreement could lead to a misclassification challenge and cost your company a lot of money and heartache. It is best to carefully craft a clear contract for you and your ICs to sign so that there is never any question about how you manage your business relationship.

Tip 4: Advise Your ICs to Incorporate.

If your ICs incorporate, they could save themselves a lot of money on their taxes, particularly if they incorporate as an S-Corp or as an LLC that is taxed as an S-Corp. Along with the financial benefits that they receive from incorporating, they’re also protecting you because they are projecting themselves as a distinct operating entity, further mitigating the perception of an employment relationship.

Continued in Part 2.

For more assistance in crafting a compliant and profitable independent contractor business model, contact Consultech Preferred IC Consultants online or by calling (800) 769-2994

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