Independent contractors have become extremely common in today's society. Becoming an independent contractor provides a certain freedom that is not generally found in a traditional employer-employee model. However, some businesses have attempted to exploit the role of independent contractors in order to avoid the responsibilities that are associated with hiring employees. Consequently, federal and state laws have set forth guidelines that govern the distinction between employees and independent contractors. Provided here is a brief guide to the legal issues that are involved.
Independent Contractor Rights
An independent contractor typically has the right to perform work for an unlimited number of clients. An independent contractor may sign a limited non-compete contract with a specific client for a designated period of time, but the scope of that contract is generally narrow enough not to significantly impact the independent contractor's business.
Independent contractors also have the right to perform the specified work in whatever manner he or she sees fit. An independent contractor generally has control over his or her own work schedule and methods. Of course, this must be reasonable. For example, a painting contractor may have the "right" to paint the client's bedroom at 3 a.m., but this would not be considered a reasonable schedule due to the impact on the client's daily living.
Independent Contractor Responsibilities
The independent contractor is responsible for providing the work as specified on time. If a written contract exists, clauses within that contract may further specify the definitions of "as specified" and "on time," as well as any consequences for delays on the part of either side. A carefully written contract that clearly delineates both parties' expectations is one key to a successful relationship.
Independent contractors are also responsible for paying their own taxes, including relevant self-employment taxes. They are paid the agreed-upon price, and the client does not take out taxes.
Defining an Independent Contractor
Federal law provides several tests that can be used to determine whether someone is an employee or an independent contractor. None of these tests can be applied in a vacuum, but all of the factors are considered together. These include:
- Permanency of the relationship - This is a very important test. Independent contractors are generally hired on a per-project basis. While a contractor may perform numerous services for the same client for a period of months or years, an ongoing relationship is never defined or implied.
- The nature and degree of control - If someone is hired as an independent contractor, but the employer begins to dictate the work location, schedule and other details, then that person may have become an employee, at least on a temporary basis. One of the keys to an independent contractor is the ability to retain control over the work process itself.
Several other factors also play an important role in determining whether someone is an independent contractor. The law can be somewhat confusing, particularly in situations that are not clear-cut. It is important that businesses and contractors maintain open lines of communication and work together to determine relevant roles for each party.