What Is An Independent Contractor?
An independent contractor is essentially a vendor to your nonprofit. That person should be considered self-employed and providing billable services to you and other customers or clients.
Independent Contractor Vs. Employee
Many nonprofits erroneously pay staff members as if they were independent contractors. Instead of treating them as employees and taking care of all that includes, such as payroll taxes, workers compensation insurance, and the like, plus supplying them with a W2 at the end of the year, the nonprofit pays them without withholding taxes and issues them a 1099-NEC at the end of the year. This is almost always incorrect, unless that individual is truly in private business providing that same service to others and billing the nonprofit for their service.
If there is a 1099 contracted vendor providing services to the nonprofit, the nonprofit does not and cannot provide the vendor with employment benefits. The nonprofit may be staffing their personnel needs with vendors who are invoicing them to do the work needed to serve the programs’ needs, but that does not constitute employment.
A true independent contractor must have autonomy of setting their own hours, providing their own resources to accomplish the work being provided, and should issue an invoice to the nonprofit for hours or services provided. If the nonprofit sets the work hours, provides the tools necessary to do the work, and defines even where and when the work will be done, it is likely that the nonprofit actually has an employee needing a W2 and the nonprofit will need to pay employer share of taxes and do withholding from the employee’s pay as well.