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If you are running your own back-office for contract placements, there are certain things you need to do when a contractor starts working to ensure you have accurate payroll records and that you are in compliance with any applicable employment laws.

For each new contractor, be sure to:

  1. Verify their name and Social Security Number. This is important for W-2 reporting. If you make a mistake, the contractor’s earnings could be applied to the wrong Social Security Number. You could end up having to file corrected W-2s for each year the contractor works for you, so it is worth the time to get it right from the start. You may want to consider using the Social Security Number Verification Service (SSNVS) to verify that employee names and Social Security numbers match.
  2. Determine the Workers’ Comp code – This can be tricky. In general, the correct code is the governing code for the client, but there are exceptions. When in doubt, submit the code and job description to your workers’ comp insurance carrier and ask them to confirm the correct code – and get their opinion in writing in case you are audited. If you are audited and are found to have used the wrong classification code, you could be hit with much higher workers’ compensation premiums than you expected.
  3. Complete the I-9 – You MUST have the contractor complete Section 1 of the Employment Eligibility Verification Form Form I-9, Employment Eligibility Verification Form on their first day of work. Within three days of their start date, you must view their “acceptable documents” and complete Section 2. Penalties for not doing this correctly are stiff, so take special care to make sure the form is complete and everything is done on time.  And if you are required by state or local law or by a federal contract to run employees through the federal E-Verify system, that must also be completed within three days of their start date.
  4. Have the contractor complete a W-4 –  This will determine how you calculate their federal taxes for their payroll.  Unless they want to make changes or they claim tax exemption, your contractors only need to do this once when they are first hired. If they do indicate they are tax-exempt, they must complete a W-4 for each year they are claiming exemption.
  5. Report new hires – New Hire Reporting laws require you to report your new hires to ensure the enforcement of child support orders. Each state is different, so be sure to look up the New Hire Reporting Center for the state in which the contractor is working.

This is not an exhaustive list. There may be additional requirements based on how many contractors you employ and the laws in the state(s) in which you do business, so you need to do your homework before you employ contractors.  Or you can consider outsourcing the employment of your contractors to a contract staffing back-office. Either way it is important to “get all your ducks in a row” so you can prevent legal and payroll headaches.

This article is for informational purposes only and should not be considered legal advice.

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