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Hiring Independent Contractors: Overview

Independent contractors perform compensated work for businesses and individuals, but they aren't considered to be employees. The independent contractor (or "IC") relationship is usually created and based on an oral or written arrangement between the business and the contractor. If the agreement is in writing, it may provide specific standards for the work in question, and establish the pay rate for that work. While independent contractors have more freedom over their work and the ability to contract with a range of different businesses, they are not entitled to many of the benefits and legal protections that are available to employees.

It can be beneficial to hire an independent contractor instead of an employee, especially if you don't have steady work that requires the assistance of another person. However, it's important to be careful when hiring a contractor because misclassifying a worker as an independent contractor when he or she is actually an employee can have negative consequences. Read on to find out more about independent contractors and what makes them different from employees.

You can also find other helpful information and resources about small businesses in FindLaw's The Hiring Process section.

Rights and Duties of Independent Contractors

When you hire an independent contractor, you don't become the contractor's employer. Instead, you are a customer or client of the IC. For the most part, ICs have the right to decide where, when, and how to complete a given assignment. While the company isn't entitled to direct his or her work, it does have the right to specify the desired outcome of the project. In addition, although the business owner can't directly oversee or give specific instructions on how to complete the work, independent contractors must complete their assigned projects on time and according to the specifications set forth in the independent contract agreement.

And while the company or business owner isn't responsible for withholding taxes for independent contractors, they have a duty to pay their own taxes each quarter.

Defining the Independent Contractor

Under federal law, a worker is either an employee or an independent contractor. The determination is measured by the degree of control the employer has over the worker versus the degree of independence the individual has from the employer. There is no single rule or test for determining whether individuals are employees or independent contractors, so the determination is made by reviewing the situation as a whole. Factors that must be considered include the following:

  • The extent to which the services rendered form an integral part of a business
  • The permanency of the business relationship
  • The amount of the worker's investment in equipment or materials
  • The nature and degree of control by each party
  • The worker's opportunities for profit and loss
  • The degree of independent business organization or operation
  • The amount of initiative, creativity and foresight required for the worker to succeed against others in open market competition

Certain factors are irrelevant in assessing whether an independent contractor relationship exists. Factors such as the absence of a formal independent contractor agreement, the job title, the time or method of payment, or the worker's licensure by the state or local government are not typically determinative in the decision.

Getting Legal Help

If you're thinking about hiring an IC, it's important to make sure that the person will actually be an independent contractor, and not just one in title. Treating a worker as an independent contractor when the nature and circumstances actually make him or her an employee can have serious consequences. If you would like help making sure that you are in fact hiring an independent contractor, you should contact an employment lawyer in your area.

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