An independent contractor is a self-employed person contracted to perform work for another entity as a non-employee. Independent contractors must pay their own taxes and do not receive employment benefits. The payer must correctly classify payees as either contractors or employees. Another term for an independent contractor is “freelancer.”
Key Aspects of Working as an Independent Contractor
Independent contractors must pay their own Social Security and Medicare taxes. The company does not withhold taxes for the independent contractor. Employment and labor laws also do not apply to independent contractors.
If an independent contractor earns more than $600 from a single payer, that payer is required to issue the contractor a form detailing their earnings for the year. Independent contractors must decide how much freedom they need versus how much risk they are willing to assume.
You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement.
The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. If you are an independent contractor, then you are self-employed.
Examples and Duties of Independent Contractors
An attorney or accountant who has his or her own office, advertises in the phone book under “Attorneys” or “Accountants”, bills clients by the hour, is engaged by the job or paid an annual retainer, and can hire a substitute to do the work is an example of an independent contractor.
Independent Contractor duties include:
- Research potential clients and projects.
- Draft proposals and negotiate terms.
- Manage deadlines and deliverables.
- Stay within budget while maximizing profit.
- Oversee project execution.
- Ensure quality control.
Independent contractors perform work independently and are hired for their expertise. In contrast to independent contractors, employees are more likely to have open-ended job descriptions within a specific role.
Employees generally work on a contract of service, whereas contractors work on a contract for services. You are not the contractor’s employer: you are their client.
Moreover, if a client does not like the work of the independent contractor, they are free to terminate the contract and look elsewhere for similar services.
Freelancing Pros and Cons
Is being an independent contractor good or bad?
Independent contractors can engage in nearly any kind of work, but employers can’t call just anyone who works for them an independent contractor. Workers are generally considered independent contractors when they have control and discretion over their work and they offer services to other businesses beyond their contracting company.
Clients are free to terminate a contract with an independent contractor and look for similar services to be rendered by a different independent contractor if not satisfied.