New York Times (02/02/12) Katherine Reynolds Lewis

The government has been cracking down on companies that treat workers as contractors for wage, tax, and benefit purposes but as employees when it comes to their work duties. An audit conducted by either the U.S. Internal Revenue Service or the U.S. Department of Labor can overwhelm a small business—even if the issues raised turn out to be unfounded.

Kevin McCoy, partner with Kruchko & Fries, a labor and employment law firm based in McLean, VA, notes employers most often slip up when they try to fill a part-time or short-term need with an independent contractor, thinking that because the position is less than full time or of limited duration, it can be filled by a nonemployee. However, if an employer tells someone when, where, and how to work, that is not considered a contractor relationship.

Along with knowing the law, companies hiring contractors need to hire carefully. Kathleen Benson, president of Herndon, VA-based research firm ORI, says contractors are a quick and cost-effective way to bring in high-level talent with specialized expertise for data-intensive projects. ”One of the benefits of an independent contractor is that you can really zero in on very specific needs and skill sets,” says Benson, who uses temporary staffing firms like Flexforce Professionals in addition to ORI’s network. During the screening process, ORI checks references and conducts background checks. To ensure legal compliance, contractors must show proof of insurance and a record of self-employment tax payments. They must also maintain a dedicated work space, since many work from home.