Employers must follow strict rules for independent contractors

Woman working on computer

From Consumer Affairs — Mark Huffman writes about the differences between employees and independent contractors.  He writes:

If you are asked to work as an independent contractor, it will be helpful for you to know the difference between a contractor and employee.

First, there are different kinds of independent contractors. Some are business owners. They might own a small company that provides IT or other services to other businesses.

Some are professionals. Doctors, dentists and lawyers are usually independent contractors. Their roles are pretty well defined.

Where things get tricky is when a business or organization assigns duties traditionally performed by an employee to a freelancer or independent contractor. Sometimes called “contract employees,” these workers are paid a lump sum with no taxes withheld.

With employees the employer withholds federal and state taxes and Social Security and Medicare taxes, contributing half of the employee’s Social Security and Medicare tax. An independent contractor must pay the full amount – the half normally paid by an employee and the half paid by the employer. Contract workers are not eligible for unemployment or workman’s comp, as employees are.

Trade off

For that downside, the contract employee enjoys a certain trade-off – freedom. They are assigned work to do and given a deadline. When and how they do it, however, is up to them. The Internal Revenue Service (IRS) is quite clear about this.

“You are not an independent contractor if you perform services that can be controlled by an employer — what will be done and how it will be done, the IRS rule says. “This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.”

Control is the key word here. And many employers increasingly are requiring independent contractors to behave like employees…

Read the full story at Employers must follow strict rules for independent contractors.

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