According to the latest statistics, the United States has nearly 73 million independent workers. Globally, there are over 1.5 billion! The number of people choosing to work as independent contractors and freelancers, either full-time or part-time, is rising. While contractors gain more flexibility and work autonomy, organizations also benefit from the growing number of contractors eager to work.
Freelancers provide just as much flexibility to businesses looking to bring in fresh talent. Because contractors aren't traditional employees, companies like yours can broaden their talent pool, hire people to complete short-term projects, and employ individuals with skills you don't have in-house, all without the commitment and costs of a new full-time employee.
Hiring contractors is easier than ever, but there are risks. Unfortunately, fraudulent actors can pose as legitimate freelancers, committing various forms of fraud to steal from businesses. When you hire independent contractors, you must do your due diligence to protect your organization. Let's explore several ways to verify a contractor's bank and identity information, ensuring you comply with applicable regulations while mitigating fraud. As always, consult legal professionals to understand legal duties and requirements specific to your business.
Utilize Online Databases to Check Their Credentials
One of the first things you must do when hiring freelancers and contractors is to check their basic credentials. You'll encounter many potential hires with impressive credentials that will benefit your organization. However, you must ensure that everything a contractor says in their resume, website, or profile is legitimate. Never hire an individual without performing basic credential checks.
Fortunately, many online databases and directories are available to help you do your due diligence. In addition to providing reviews from previous clients, many of these platforms allow you to cross-reference names, addresses, and contact information. If you're hiring freelancers with specific skills or certifications, look into industry-specific databases. You can dig deeper to verify licensing data, certification numbers, insurance, etc.
Not all contractors will provide the necessary information upfront. Don't hesitate to ask for it if that's the case. You can also inquire about references and examples of past work to gain more insight into the individual's qualifications and credentials.
Always Request Form W-9 From the Contractor
IRS Form W-9 is a document that helps make tax reporting for independent contractors and freelancers much easier. You must request a completed W-9 from every contractor you hire. It's a formal request for information that requires the individuals you hire to provide their name, address, tax identification number (TIN), business entity type, etc.
You can verify the information with the IRS before working with the contractor and sending payments. Platforms like Dots make the process even easier, verifying data with the IRS for all domestic hires during onboarding.
Businesses need information gathered on the W-9 to report payments to contractors to the IRS. The form can also help you avoid paying backup withholding taxes.
If your business hires international contractors, you must request a W-8BEN or W-8BEN-E. A payouts API like Dots can help you collect these forms and verify information, but consult with a tax professional to understand requirements for your specific hiring scenario.
Use Digital Signatures for Security
After you start working with contractors, you'll likely have several documents and invoices to process. Invoice fraud is more common than most realize, and your business must take extra precautions to verify the identity of those signing. However, that can be tricky when working with freelancers. Many organizations hire contractors who work remotely and live nowhere near business offices. While you can send invoices and documents via email, there's always a risk that the signatures you receive back aren't from the person you hired.
One way to mitigate fraud risks is to use digital signatures. Digital signature platforms offer a secure and legally binding way to sign documents online. These platforms use advanced authentication technologies and encryption, providing peace of mind. Once set up, digital signatures verify the signer's identity and gather information about the date and time of completion.
Verify Their Bank Details Match The Original Information Given
Another way to verify the identity of the freelancer you hire is to check that the bank details provided match the information supplied. Ensuring that the account holder's name, account number, and routing information are accurate minimizes fraud risks and ensures you send funds to the rightful person.
There are many ways to verify bank details. Online payment services and platforms often offer verification services, validating bank details before processing payouts. You can also request additional information from your contractors. Good examples include a verified letter from their bank, a voided check, or a bank statement. Cross-reference the information you received with these documents to make certain everything matches.
Track and Evaluate Their Performance
While initial verification can go off without a hitch, that doesn't mean issues can’t arise after you begin working with a contractor. Once great hires can slack off, failing to fulfill their end of the work. Furthermore, cybercriminals can steal access to a freelancer's accounts, committing fraud under your noise without raising any red flags.
The best way to verify a contractor's identity in the long term is to track and evaluate performance. Monitoring performance is always a smart move. In addition to maintaining peace of mind, regular evaluations ensure you're still getting quality work.
Keep track of the quality of deliverables, timeliness, service costs, and more. Many organizations also periodically perform audits and performance reports. There are many approaches to performance monitoring. Some businesses do things manually, but software can also provide a cost-effective way to create, track, and record key performance metrics.
Create a Space for Open Communication
Our final tip is easy: Maintain good communication and create a dedicated space for contractors to reach contact points directly. While brokers, agents, and third-party intermediaries offer many benefits, there's always a risk of impersonation, misrepresentation, and increased security vulnerabilities. Giving your freelancers a space to communicate openly benefits everyone. You can use email, phone calls, video chats, or dedicated virtual spaces.
Whatever you choose, these spaces allow you to build a rapport with your contractors. They're also a great place to resolve issues, confirm invoice details, verify data, and more. Communicate with the individuals you hire regularly, and you can create long-lasting business relationships while actively mitigating fraud risks.
Get Started With Dots Today
Organizations have so much to gain from working with independent contractors and freelancers. It's your chance to bring in fresh talent without excessive overhead costs or an inflated hiring budget. Whether you work with contractors for several months or on a project-to-project basis, you must cover your bases during the hiring process to prevent fraud, compliance issues, etc. Follow our tips to accurately verify contractor bank, identity, and tax information to start your working relationships on the right foot.
Use Dots to streamline your entire approach to hiring contractors worldwide. Dots is a unified payment platform that allows you to pay freelancers, contractors, and more on their terms. The Dots API helps you onboard new hires quickly and efficiently, collecting necessary information and automatically verifying data with the IRS. Protect your business from fraud and comply with all relevant regulations. Dots includes many built-in features that make a difference, including identity verification, fraud detection, integrated compliance, comprehensive tax reporting, and more.
Schedule your Dots demo today to learn more and see how our platform simplifies payout, compliance, and reporting logistics for your business.