An independent contractor is a person or company that provides services to another person under an express or implied agreement and is not subject to the control or right of others to control the manner and means of providing the services. A person who hires an independent contractor is not liable to another person for the acts or omissions of the independent contractor. An independent contractor is different from an employee who regularly works for an employer. The exact nature of the independent contractor`s relationship with the hiring party is important because an independent contractor pays their own social security, income taxes without deduction of wages, has no pension or health insurance entitlements, and is often not eligible for workers` compensation. Under tort law, employers who hire independent contractors generally do not have enforcement agents for the tortious acts of independent contractors. Although the duties of certain types of conduct cannot be delegated, employers remain vicariously liable. Such conduct includes: (a) inherently dangerous activities, (b) obligations arising from a relationship with a particular complainant or the public, (c) obligations to keep premises open to the public in a reasonably safe condition for traders or landowners for invited persons, and (d) obligations to comply with state security laws in a minority of jurisdictions. There are many fairly common examples of independent contractual functions or roles in today`s economy. Independent contractors are not employees of the business or entity to which they provide services. However, the employer pays the independent contractor for their work.
Independent contractors are self-employed (also known as „Business for Self”), which means they can work for multiple clients at the same time. Companies often use independent contractors for services to avoid hiring employees for short-term needs. It is important not to blur the boundaries between the contractor and the employee. Do not allow independent contractors to use business equipment they should already have. For tasks such as writing and graphic design, contractors usually don`t work on-site. If employers incorrectly define an employee as an independent contractor, they may be held liable for past taxes, including FCIA and federal unemployment tax. The Department of Labor (DOL) and the Internal Revenue Service (IRS) maintain important definitions and rules for independent contractor status. The general rule of the IRS is that a person is considered an independent contractor if the payer for the services can only control the outcome of the work, not necessarily how it is performed. The independent contractor completes the IRS Form W-9 and an employee completes the IRS W-4 tax form.
Independent contractors must keep an eye on their income and include any payments received from clients. Clients are required by law to issue Miscellaneous 1099 forms to their contractors if the amount they pay justifies these costs. If an independent contractor earns more than $599 from a single payer, that payer must give the contractor a Form 1099 detailing their earnings for the year. Freelance writers typically work as independent contractors, writing articles and then selling the articles to publications. Similarly, freelance graphic designers can create graphics for one-off projects from many companies. The work product is defined in an agreement, then performed as the freelancer sees fit, and they are paid for each task they perform. Again, the type of work will help define the relationship. If the work is considered an integral part of the business, the person is more likely to be an employee. On the other hand, temporary and non-integral work may involve the status of independent contractor. If there is an employer-employee relationship (whatever the relationship is called), you are not an independent contractor and your income is generally not subject to self-employment tax.
An independent contractor or freelancer is a natural or legal person who is assigned to perform work for another business or provide services to another business as a non-employee. Working with independent contractors allows you to employ several simple tactics to stay away from hot water with the IRS and ensure the job meets your needs. Being an independent contractor has many tax implications. For example, an employee shares the cost of Social Security and Medicare taxes with their employer; while an independent contractor is responsible for all amounts.