Hire Contractors in the USA

The US labor force is highly dynamic and diverse, well-equipped to meet the demands of various industries. 

With a robust educational system and top-notch universities, the country has consistently produced many talented graduates yearly. 

They possess the necessary skills and expertise to excel in diverse fields like finance, healthcare, and engineering. 

This has proved hugely beneficial for companies willing to hire contractors in the USA. 

In addition, the US labor market is highly flexible, meaning businesses can quickly adapt to changing market conditions. 

It allows companies to hire and lay off workers as needed without hindering business productivity. 

However, hiring and paying an independent contractor in the USA requires a thorough understanding of the labor laws, tax requirements, and other similar obligations.

To help you with this, here is a detailed overview of the contractor hiring process in the USA, its associated challenges, and how you can navigate through them with Skuad EOR.

How to Hire US Contractors

There are two main ways of hiring and paying an independent contractor in the USA. They include,

1. Direct Hiring

• Hiring contractors directly means you will be the sole in charge of the entire recruitment process. 
• This includes tasks such as understanding your project needs, evaluating potential candidates based on the project requirements, completing all the technicalities of onboarding, drafting proper contracts, paying them in compliance with US tax laws, and, most importantly, avoiding the risk of misclassification.
• Due to the complexity of this method, hiring contractors directly is best suited for short-term projects. 

2. Hiring via Contractor Management Software/AOR

• An agency of record is a service provider that takes care of specific administrative tasks and payment procedures for US contractors during the hiring process. 
• It not only enables you to save a lot of time and resources that otherwise would have been spent on sourcing candidates and doing the paperwork but also increases your business productivity. 

Hiring Contractors through Skuad AOR

• By partnering with an AOR such as Skuad, you can simplify the contractor onboarding process from one platform. 
• Skuad ensures 100% compliance with all the labor and tax laws of the USA. This includes drafting legal contracts, invoicing, and proper worker classification. 
• Skuad also streamlines the international contractor payment process by featuring multi-currency payouts.
• Skuad has a built-in IP protection system to safeguard your company’s IP under all US laws.

How to Pay Contractors in the USA

The most common ways to pay US contractors are through international bank transfers, money orders, cashier’s checks, or online money transfer companies. 

While all these direct forms of payment offer your business greater flexibility and transparency, there are quite a few downsides to them as well. 

You will need to be adept at all the nuances of payroll processing, such as tax deductions, currency considerations, and record keeping, to ensure compliance with US laws. 

This is why many businesses seek the services of contractor management software or an AOR such as Skuad. 

Skuad is an all-in-one platform consolidating all your payment needs under one roof. Its many capabilities include,

• Payroll in 100+ currencies
• Automated invoicing
• Guaranteed accurate and on-time payments for all your US contractors. 

Hiring Contractors Directly vs. Hiring contractors via Skuad

Let’s examine this detailed comparison of the two main ways to hire contractors in the USA. 

Cost of Hiring Contractors in the USA

There is usually no fixed total cost of hiring contractors in the USA. It can vary depending on numerous factors, such as the scope and requirements of your project, the industry, the experience level of the contractors, or the type of work you are demanding.

For example, the current average hourly rate for a contractor in the US, operating in healthcare, is $58. Whereas, US contractors who specialize in marketing, usually demand $32.48 per hour on an average.

Additionally, US contractors with many years of experience will likely charge you more than freshers.

Challenges of Hiring Contractors in the USA

Let’s take a look at a few challenges that are often associated with hiring contractors in USA. 

1. Understanding the ABC Test and Other Legal Requirements

The USA has a unique mechanism, the ABC test, when classifying workers and contractors. It is essentially a three-part test that employers must fulfill to determine the legal status of an independent contractor to work in the US. 

The three criteria are as follows,

• The worker is not subject to the employer's control regarding the performance of the designated task.
• The work performed will be outside the usual course of the company's business and the business's site.
• The worker must be engaged in an independent trade, occupation, or business. 

The duty to prove workers are independent contractors directly falls on the shoulders of the employers, making the process more difficult. 

In addition to this, various states of this country have recently started expanding their independent contractor laws. 

For example, under the Iowa Senate Bill 2296, workers who operate certain vehicles will be classified as independent contractors instead of employees. 

Understanding these various regulations and staying up-to-date with the changes can be very difficult, especially if you do not have a team of legal professionals. 

However, building such an in-house team of experts requires a lot of resources and time. 

2. Forms and Associated Taxes for Independent Contractors

Unlike an employee, an independent contractor in the USA must pay their own Social Security and Medicare taxes. 

This increases your responsibility as an employer to guarantee that all such tax obligations are met accurately and on time. 

Additionally, there are quite a few other obligations that you, as an employer, must fulfill when you decide to hire contractors in the USA. 

They include,

• Once it has been determined that you are paying an independent contractor, you must have the contractor complete the Form W-9, Request for Taxpayer Identification Number and Certification.
• To report nonemployee compensation (NEC) payments, you will need to use Form 1099-NEC. Make a copy of the form and provide it to the independent contractor by January 31 of the year following payment. Additionally, you will need to send a copy of this form to the IRS. 

Understanding these obligations and, most importantly, maintaining adherence to guarantee a compliant international contractor payment process is not always easy. 

It gets even more complicated when you hire multiple contractors at once. 

That is why most businesses utilize contractor management software or an automated payment solution.

However, both can be extremely costly and not always financially viable for small to mid-sized companies.

To overcome these challenges you may either opt for an AOR for contractor management. Also, if you feel you require the contractors for a longer period of time, you can convert them to employees.

How to Convert a Contractor into an Employee in the USA

Truthfully, switching from Form 1099 to W2 is relatively straightforward and does not involve many complexities if you simply follow the steps below. 

• Learn about all the employment laws and regulations of the USA. For example, employees in this country are only required to work 40 hours per week. A detailed knowledge of such provisions will help you to ensure 100% compliance and avoid potential legal burdens.
• Notify the worker as soon as you decide to convert the contractor into an employee, and draft a proper written employment agreement highlighting all the necessary details, such as working hours and salary benefits. 
• Gather employee information so that you can begin the onboarding process. Run a thorough background check. 
• Add your new employee to your payroll and time and attendance software.

Hire Contractors in the USA with Skuad

With expertise in 160+ countries and 600+ clients worldwide, Skuad is the ultimate solution for all your global hiring needs. 

It simplifies every aspect of the contractor hiring process, from onboarding to payroll, compliance, and more. 

Skuad’s robust payroll mechanism enables you to send accurate and timely payments to all your US contractors with just a few clicks. 

Additionally, we provide privacy and data security, including compliance with SOC, IP agreements, and custom permissions. 

‍Book a demo today and experience a smooth hiring journey only with Skuad!

FAQs

Q1: How do I hire a contractor in the US?

Ans: You can hire a contractor in the US either directly or through contractor management software or an AOR, such as Skuad. If you choose the former option, please note that it will involve many administrative hurdles, compliance issues, and payment complexities. 

Q2: What is the difference between a USA employee and a contractor?

Ans: An independent contractor in the USA can be defined as an individual who owns a business and usually joins a company based on a contract to perform a specific project. On the other hand, an employee has agreed to work regularly for a single employer in return for salary and other statutory benefits, such as paid leaves and health insurance, among others.

Q3: How are contractors paid in the USA?

Ans: Direct deposit, payroll, checks, and cash are the most common forms of payment for US contractors. However, these methods usually require a thorough knowledge of the country's tax laws, the current currency exchange rate, and other details of international transactions. 

A cost-effective and safe alternative to this is to partner with contractor management software or an AOR such as Skuad. 

Q4: How does Skuad help hire, pay, and manage independent contractors in the USA?

Ans: Skuad’s unified platform helps you efficiently manage the global hiring process. It boasts numerous capabilities, such as legal experts who oversee the entire compliance process, automated solutions that facilitate international payment, and built-in IP protection that safeguards your company’s IP. 

Additionally, if you ever decide to switch your US contractors to full-time employees, Skuad keeps all past employment records and other necessary details intact to guarantee a smooth transition.

Q5: What is the hourly rate for a US contractor?

Ans: The hourly rate for an independent contractor in the US usually differs based on multiple factors, such as the industry, their experience level, or the type of work required to complete.