Freelancers Have Extra Appeal for Business Recent tax law changes which went into effect January 1, 1997 make hiring independent contractors even easier for small business owners­by making it harder for the IRS to challenge the practice. The use of independent contractors (freelancers or consultants) appeals to businesses because freelancers are responsible for their own payroll taxes. But if workers classified as independent contractors are later determined by the IRS to actually be employees, the offending business can be buried by an avalanche of back taxes, penalties, and interest charges. This past August, Congress tilted the playing field slightly toward business with changes included in the Small Business Job Protection Act, signed by President Clinton on August 20th. The law shifts the burden of proof to the IRS when the agency questions an employer's classification of a worker as an independent contractor rather than an employee. Previously in such cases, it was the employer's task to prove that the worker was not in fact an employee. Tax professionals suggest that a written agreement be signed by both parties as a precautionary measure against penalties should an audit occur. The agreement should: * Describe the services to be provided, the duration of the agreement, and the money to be paid the contractor, with the understanding that there will be no fringe benefits. * Specify that the contractor is responsible for paying his or her own Federal and state taxes. * Include acknowledgment by the contractor that he or she has complied with applicable business licensing requirements and maintains a set of books and records. Return to Tech Talk