What Is an Independent Contractor?


If you’re an independent contractor, you have to pay self-employment taxes to the IRS (the current rate is 15.3%—12.4% for social security and 2.9% for Medicare). Like independent contractors, freelancers determine their own rates and specify if they will be paid by the hour or per job. Among those that work with a single client, some independent contractors will actually come to the company’s office, work side-by-side with employees, and even have a workstation. They are also more likely to be added to a company’s internal communication platforms, such as Slack. One of the main reasons people stay as employees is to have employee benefits, like healthcare, paid for by their employers.

How Do You Pay an Independent Contractor?

You pay an independent contractor just like you would pay any freelancer either by the hour, by the project, or by a flat fee. You can pay an independent contractor by check, Venmo, PayPal, or cash.

If you misclassify a worker, you could be subject to substantial penalties and fines. As a business employing independent contractors, you want to check in on the IRS 20-Point Checklist for Independent Contractors to make sure you are not misclassifying employment and breaking the law. The courts have found that no single factor or group of factors conclusively define an employer-employee relationship.

How To Pay an Independent Contractor

As an independent contractor, you don’t have to work for someone else; you may set your own hours and complete work assignments whenever you choose, depending on the type of job. You should be able to negotiate pay rates and a payment schedule, but you may still have to keep a timesheet if you are working on an hourly rate.

If you did more than $600 of work for a particular client, they’re required to file Form 1099-MISC and send you a copy of it. 1099-MISC is an “information filing form” used to report non-salary income to the IRS.

What is an independent contractor?

Since they are rarely tied to an What Is an Independent Contractor, they are free to set their own rules of business, limited only by bargaining power. Independent contracting has both benefits and drawbacks to contractors. This is not intended as legal advice; for more information, please click here. You or your worker can file Form SS-8 by filling out and mailing the form to the IRS. Check with your state to see if there are any state-specific laws you must follow when you classify a worker. When looking at behavioral control, think about whether your company has the ability and right to control what the worker is doing and how they complete an assignment.

  • They are often small business owners who hire out their services.
  • An independent contractor is able to earn a living on his or her own rather than depending on an employer.
  • An independent contractor is a person, business, or corporation that provides goods or services under a written contract or a verbal agreement.
  • Independent contractors are responsible for making estimated tax payments quarterly.
  • When work is considered integral to the business, it is more likely that the person is an employee.

Entrepreneurial and distinctive work favors an independent contractor relationship. More opportunity for profit or loss favors an independent contractor relationship. An independent contractor 1099-MISC is the IRS form that an organization must have each contractor fill out after an independent contractor agreement is signed. Hiring an independent contractor can be a cost-effective way to meet nonrecurring business needs or accomplish tasks a full-time employee can’t. If you’re careful to follow IRS and DOL rules, an independent contractor can be an excellent addition to your business team. ComplyRight’s chart below shows the stark differences between independent contractor and employee classifications.

Intellectual Property Rights

There are also drawbacks to be aware of when working with independent contractors. If you are lucky enough to work for one or more clients who pay you regularly, that’s great, but the money can stop at any time, even if you have a contract. It’s important to have savings to tide you over if your clients don’t have immediate work for you to do. Independent contractors are self-employed people who work for other people or businesses as nonemployees.

https://www.bookstime.com/ misclassification of employees as independent contractors either inadvertently or to avoid taxation and regulation, is widespread. Additionally, contractorization has been used as an indirect form of union-busting. As a business owner, you might need to hire a worker at some point or another. And depending on your type of business, you might need to hire employees, independent contractors, or both to get the job done.

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