Legal Implications for Using Independent Contractors
The IRS and various state agencies take a very firm stance on the issue of misclassification of certain workers as independent contractors, as opposed to classifying those workers as employees. In years past, corporations could hire certain technical personnel as independent contractors, thus avoiding the tax liability associated with these workers and affording significant tax benefits to those workers.

Effective with the Tax Reform Act of 1986, the IRS began to aggressively target both companies and workers who engaged in this practice. The resulting reclassification subjected those companies to significant liability for withholding tax, social security payments, penalties and interest. In addition, such reclassification of independent contractors as employees may entitle such workers to retroactive employment benefits, including unemployment compensation, health benefits, paid time off, and even pension benefits.

The way for your company to avoid such liability is to utilize a technical services firm that only provides workers that are its bonafide employees. Such employees should be paid on a W-2 basis, should have all of their employment tax and withholdings paid, and be treated in a manner consistent with that of an employee/employer relationship.

One of the benefits of working with a contract service agency who acts as the employer of its contractors is that the agency bears all responsibility to report the contractor's income as well as pay statutory and withholding taxes.

By contrast, when you utilize independent contractors or agencies that provide contractors who are not its employees, you may be responsible for such taxes as well as substantial penalties in the event the worker is subsequently reclassified as an employee. Staffing your temporary needs through an agency who pro-vides contractors that are its bonafide employees eliminates your worry of future liability.

Accurate Records and Reporting
The employment agreement between the contractor and the agency should require the contractor to maintain and submit Pacific NetSoft time cards approved by you. The approved time cards comprise the basis on which you will be invoiced by the agency and by which the contractor will be paid. For your future contract employment planning and budgeting, the agency should be able to provide you with historical contractor usage and spending reports. The contract service agency is responsible for payroll and IRS compliance. The contractor's approved time cards should be entered and processed quickly and accurately. The agency ensures that Federal and State Withholding, FICA, SDI, and any other insurance and benefits are calculated, deducted, filed, and reported to the IRS. The agency is also responsible for ensuring that the I 9 Employment Eligibility Verification and W 4 Employee's Withholding Allowance Certificate documents are completed and accurately recorded.

One of the benefits of working with a contract service agency who acts as the employer of its contractors is that the agency bears all responsibility to report the contractor's income as well as pay statutory and withholding foxes-eliminating your worry of future liability.

Intellectual Property and Confidential Information
Contractors will often work on your technical projects, which contain classified or confidential information. To safeguard intellectual property rights, make sure that the contract service agency has stipulated all copyright, trademark, patent protection, contract developments, and confidential information as your property in the employment agreement which the contractor signed.

Performance Evaluation
Your relationship with the contract service agency does not end when the contractor starts work. The contract service agency should conduct periodic follow up meetings with both the hiring manager and the contractor to ensure that the performance evaluations are satisfaction, and that work meets expectations. If needed, they will act in concert with you to counsel the contractor to modify his behavior. In short, through frequent communication the agency should strive to ensure that all expectations and terms of the agreement are met.