If you are a small business owner who is currently in the process of growing your business, you may potentially consider hiring new employees such as independent contractors. While independent contractors are distinct from employees from a legal and tax perspective, hiring contractors may be advantageous for financial and strategic reasons.
A small business is not legally obligated to offer health insurance to independent contractors; however, deciding to offer health coverage to one contractor requires a business to provide health insurance to all employees at that level.
According to the IRS, an individual can generally be defined as an independent contractor if those who pay him or her only have the right to direct the result of the individual’s work, and not what or how the work will be done. If an individual works as an independent contractor, what they earn is subject to the Self-Employment tax.
When hiring workers for your business, it is important to understand the legal differences between independent contractors and employees. Although independent contractors or self-employed workers are often referred to as 1099 “employees,” they are usually not really employees from a tax and legal perspective. The tax forms used for payroll tax deductions, 1099 and W-2s, can be used to help distinguish independent contractors from employees.
While there is no exact definition of an independent contractor, the IRS has suggested that the level of employer control and relationship between employer and worker can be used as ways for small business owners to help classify their workers.
Examples of self-employed workers who may be independent contractors include doctors, building subcontractors, accountants, lawyers, and freelancers.
A company may consider hiring independent contractors for several strategic reasons, especially when growing their small business.
Ultimately, hiring independent contractors may allow you to create an adjustable roster of skilled workers who could help address your needs as a growing small business.
Generally, the hiring process for bringing on independent contractors includes recruiting candidates, developing a contract, and completing required tax and hiring documents.
In order to accurately and efficiently streamline the hiring process, a small business may consider working with a legal, accounting, or tax advisor when deciding whether to hire independent contractors.
As you manage the hiring process for new employees or independent contractors, you may be wondering whether you have to offer group health insurance to your workers.
According to the Affordable Care Act, a small business with less than 50 full-time equivalent employees is not required to offer group health insurance to its employees. Still, many small businesses choose to offer health insurance to their workers due to the popularity of this employee benefit.
You are not legally obligated to offer health insurance to independent contractors, since they are not officially employees. However, if your small business decides to offer health insurance coverage to one contractor, then you must offer health insurance to all workers at that same level.
Although you are not required to offer group health coverage to independent contractors, choosing to provide them with medical benefits may be an effective decision for your small business.
Advantages of offering group health insurance to independent contractors may include:
eHealth can help you find small business health insurance for yourself, your family, and your employees, as well as independent contractors. Our private health insurance marketplace offers the largest selection of quality health plans available online. When you use eHealth to shop for health insurance, you can quickly compare group health plans from different companies side by side, making it easy for your business to find the right health coverage for your needs and budget all in one place.
Find out what your options are for affordable group health insurance by visiting our small business page at eHealth.com or by contacting one of our helpful licensed insurance agents.
This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.