Employee handbooks and 1099 contractors - what you need to know

If you employ independent contractors, you might want to consider developing a handbook with useful information for them. If you’re thinking about how you approach this, it can be a powerful tool. There are, however, some important caveats.

The critical thing to understand is that independent contractors are just that: independent. If you treat your contractors like employees (and the IRS agrees), you could be liable for all the benefits, protections, and compensation that employees are entitled to. Misclassification of employees can result in fines, penalties, and headaches. If you’re unsure, refer to the IRS definition of a contractor. Independent contractor relationships are best managed with a contract.

Additionally, don’t give your 1099 contractors a copy of your employee handbook, because you never want to muddy the line between contract and employee labor. It’s always a good idea to consult with an attorney to ensure you have correctly classified whether your workers are employees or independent contractors.

With that out of the way, it can be useful to provide guidance to your contractors about how your company operates, your mission, and how they fit into that equation. For this, a Contractor Standards Guide can be helpful. Although similar to an employee handbook, a Contractor Standards Guide can serve as an abbreviated guide for your company's policies and expectations for independent contractors.

Some items that CAN be incorporated into your 1099 independent contractor handbook include:

• Your mission statement
• Your vision for the company and how they fit in
• Company specific information like where to park, how and when they can gain access to facilities, and when certain events usually occur
• Details about your company culture and practices
• Health and safety information
• Smoking policy
• Guiding principles
• A reminder that independent contractors exercise independent control in how they approach and complete a project, and that they are responsible for obtaining and using their own tools and equipment to complete their tasks.

Some items that SHOULD NOT be included in your contractor handbook include:

• Information on benefits including paid holidays, vacation, introductory periods, and insurance.
• That contractors are subject to minimum wages, overtime compensation, employee benefits, or tax withholding. This is not true for independent contractors, so don’t include this language..
• Promises of future employment. Contractors are not subject to unemployment compensation after job completion or termination. They are hired on a per-job basis with no promise of future work.
• Independent contractors are not subject to workers’ compensation in the event of injury.
• Dress code and disciplinary policies.
• Pay periods not defined by contracts or through invoicing.
• Attendance policies, time off and leave policies, and performance reviews.

While independent contractors exercise a great deal more control over how they represent themselves and complete the project assigned to them than W-2 employees, communicating your company’s integral message is a great way to showcase your expectations while allowing your contractors to exercise independence.

Note: An Independent Contractor Handbook is provided with the Comprehensive Handbook.