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Independent Contractors: Overview

Independent contractors perform compensated work for businesses and individuals. Independent contractors are not considered employees. An agreement determines the relationship between a business owner and the contractor. These agreements outline specific standards for the work and establish the compensation rates.

Independent contractors have more freedom over their work. They can contract with a range of businesses. This independence comes at the cost of certain legal protections afforded to employees

This distinction holds significant implications for freelancers, the self-employed, and small businesses alike. It impacts the employer-employee relationship and the autonomy they have over their expenses. 

Read on to learn more about independent contractor work and how to determine your employment status.

Defining the Independent Contractor

Under federal law, a worker is either an employee or an independent contractor. This distinction hinges on the working relationship and the level of control the employer exercises over the worker. Independent contractor status isn't determined by a single rule or test. Instead, it requires a holistic assessment of various factors. These factors include:

  • The extent to which the services rendered form an integral part of the worker's own business
  • The permanency of the business relationship
  • The amount of the worker's investment in their tools
  • The nature and degree of control by each party, e.g. who decided what work is done and how gets done
  • Whether the work performed is outside of the employer's place of business
  • The worker's specialized skills in a trade
  • Whether employee benefits are provided to the worker
  • Whether the employer pays employment taxes and social security on behalf of the worker

Certain factors are irrelevant in assessing whether an independent contractor relationship exists. Factors like the absence of an independent contractor agreement or the worker's licensure by the state are often not considered. 

For more guidance, visit the Department of Labor's website.

Rights and Duties of Independent Contractors

As an independent contractor, the hiring company is not the employer, but the customer. Independent contractors have the right to decide when, where, and how to complete a project. If you are an independent contractor, the businesses hiring you are not entitled to direct your work. 

In general, your customer specifies the desired outcome of your work. Independent contractors have the freedom to determine how to achieve that outcome.

While clients do not oversee the work, independent contractors don't have free rein. They must complete their assigned projects on time while following the specifications outlined in the agreement. 

Traditional employees are subject to tax withholding. Independent contractors are responsible for managing their income tax obligations to the IRS. This duty extends to making quarterly tax payments under state laws and regulations.

Are You Misclassified? Consult an Attorney Today

If you're working as an independent contractor but meet the legal criteria of employment, reach out to an attorney experienced with labor laws. You may be getting cheated out of vacation, workers' compensation, and other valuable protections. 

If you have any doubts, consider speaking with an attorney for legal advice. Get started with a legal evaluation of your situation by an employment law attorney near you.

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