Working with Independent Contractors

Outsourcing can be a lucrative option to cut costs

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0521_contractor-exclusiveIf you can’t afford the costs of hiring a new employee, but you do have a need for talent, consider outsourcing to find a self-employed independent contractor to handle the job. Contractors can work on a per-project basis, which could make accounting easier, reduce overhead and reduce the employer’s tax burden.

“When someone is an employee, their employer pays half of their payment for Social Security taxes and other expenses,” says Elaine “Laney” Johnson, president of Financial Business Solutions in Doylestown, Pennsylvania.  “But when they receive income as an independent contractor, they are in fact the employer and employee, so they have to pay the entire tax amount (and the business that hires them does not).”

Analyze the worker relationship. The savings can be significant, but William Levan Byrd, a sole practitioner CPA in Sumter, South Carolina, says entrepreneurs who are considering this option need to respect the service provider’s boundaries.  That’s because the IRS pays special attention to the amount of “independent” a worker has in their “independent contractor” role.

“If a worker completes tasks in their own hours, uses their own equipment, and completes the work in their own way, they may be considered an independent contractor,” says Byrd.  This is often the case with insurance agents, marketing consultants and independent sales representatives.

Alternatively, if a company controls when and where a worker shows up for the job, and pays for all their equipment, the IRS may decide that worker is really an employee and should be taxed accordingly, says Byrd.

As a business owner, if you’re unsure about a worker’s status, Byrd suggests filing out Form SS-8, a checklist that allows the IRS to make that determination.  For more information, visit

Decide status based on worker role. Even though hiring an independent worker can reduce costs, business owners shouldn’t consider the option solely because of money concerns, Byrd says.

“The biggest mistake I see companies make about independent contractors is to hire them based on cash flow issues,” he says.  “It’s not a decision to be made based on available cash.   It’s a decision to be made based on the appropriate facts of the business situation.  The law is very clear about who can and can not be an independent contractor.”

If a company improperly classifies an employee, the IRS can audit them, require them to pay back employment taxes and would likely assess penalties, says Toni Levy, CPA and owner of Toni Levy and Associates in Louisville, Kentucky.  “Some small businesses owners who get caught find that their penalty fees are higher than the amounts they paid their (misclassified) workers in the first place,” she says.  “It’s the price to pay for disobeying the law.”

Keep paperwork current. Businesses that hire legitimate contractors need to file certain documents at tax time, says Johnson , president of Financial Business Solutions.

“Make sure contractors fill out a Form W-9 before any work begins,” says Johnson.  This is the IRS form used to request the contractor’s correct name, mailing address, taxpayer identification number (TIN) and business information. Blank forms are available from

Companies should also be prepared to send their workers tax documents after the end of the year.  If a sole proprietor or small company (not a corporation) performs services that total more than $600, companies should annually send them a Form 1099 for tax reporting, says Johnson.

For companies that are growing in need, but don’t have a requirement to bring on an employee, hiring a self-employed contractor can be a cost-effective way to add talent to the team.


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  • Ibrahim Bangura

    This is a reminder that our time is here to build an everlasting bridge between Black people in the diaspora and Black people in Africa. Today, we have the most powerful black man that ever lived in The United States of America, The Richest black man or black woman in the world lives in the United States but there is very little influence on investment in Black Africa. Business in Africa is still dominated by ppeople of other race. There is no reason why black business people are not making the atempt to invest in Africa for profit and for job creation for thier African people.
    This is the time for tourism to grow enabling all black people out of Africa to visit their roots, learn from, experience and see what they can identify with while same time develop lasting memories out of lasting relationships. One will appreciate the African culture and African people more when one has good knowlledge and understanding about the continent and its people. This in turn will help black people out side Africa to learn about their relationship to the dominant black culture and in turn learn about themselves.
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    I want to return home, Sierra Leone, West Africa because the rebel war, caused by outsiders, has ended about five years ago. I want to develop a tourism business that will encourage black people outside Africa to have the opportunity, at least once in thier life time, to visit Black Africa. This will be an educational and beautiful experience going for pilgrimage to historic places in the rural areas with the opportunity to live in mordan sample houses in the rural areas equiped with clean drinking water, lighting system using solar power, and all you can expect in a basic middle-income-earner’s home in the United States of America. This will mean a renesance for eveyone who will like to learn about their ancestors and themselves.
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    Sierra Leone has a long history with the United States of America, Canada and the United Kingdom. In 1807,after the abolution of slave trade, many slave merchants were been chased on the high seas with illegal cargo of captured slaves sailing to the Americas, and many exslaves in The USA, CANADA, and ENGLAND were to be repatriated to Africa. When this project took off, they sailed and landed in Sierra Leone in 1807. It is reported that, whosoever steps his or her feet on the soil of this country is a free man or woman. The ex-slaves were set free and the capital city became known as FREETOWN. There is a lot learn about the transatlantic slave trade that revaged Sierra Leone and to learn about the return of ex-slaves, how they integrated with the local people, their new culture, language and the progress that they have made since their return.
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    Please reply.
    Ibrahim Bangura
    Tel. (213) 909-6470

  • Yes This is Gary. Is there any black buisiness men out there to help market our product? If only we can reach Ophra Whinfrey. We won’t need any other marketing devices.We will come give her a demonstration. I’ve been trying to reach her sence 1987.Our product is being manufactured as i’m writing you. My cell number is 408-561-2555 or 209-491-0572. Go to It’s in a concept phase. It will be up Aug.1 2009 or July31st 2009.

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