Independent contractors work in many professions and their earnings vary widely. It can be difficult to pinpoint the thing that groups them together into a single category, apart from the fact that they bear full responsibility for paying income taxes.
Since an increasing number of companies are taking on new workers as independent contractors, particularly in the information technology industry, it is important for people joining the workforce or considering a career change to understand the nature of contract work and the types of things they should look for in a contract. Failure to fully understand a contract can give rise to issues that lead to litigation.
What is an independent contractor?
The definition of an independent contractor is deeply intertwined with the nature of employer-employee relationships. Companies that hire traditional employees exercise ultimate control over the way in which employees perform their work. Independent contractors, on the other hand, can choose their own methods for completing tasks. The hiring party only has control over the expected result of the contractor’s efforts.
Sometimes, the relationship between the worker and the hiring party can be difficult to categorize. Some aspects could indicate employee status while others point to independent contractor status. Ultimately, it is the responsibility of the hiring party to analyze the employment details and determine the worker’s official status.
What’s in the contract?
It is crucial for people who are considering new independent contractor positions to read the contract carefully. This document will specify the nature of the relationship between the hiring party and the worker, and it will offer important clues as to how advantageous the position will be for the worker. In some cases, it may reveal that the position has been misclassified. Companies sometimes misclassify regular employees as independent contractors in order to avoid paying half of their Medicare and Social Security taxes.
If several of the following statements is true about an independent contractor contract, then the position may have been misclassified:
- The hiring party retains control over how the contractor performs services, including the location, time and mode of work.
- The hiring party indicates the specific equipment to be used and/or provides these supplies.
- The hiring party plans to provide extensive training on how jobs should be done.
- The hiring party specifies that evaluations of the contractor’s work habits will be conducted on a regular basis.
If one or more of the above are true about a position, then the independent contractor may actually be signing on to work as a traditional employee.
Other considerations
Independent contractor contracts often contain clauses detailing the ownership of intellectual property. This is an area often fraught with controversy and a frequent cause of business litigation. In addition to evaluating the legitimacy of a contract position, people considering contract work should make sure that they are satisfied with the specifications regarding the ownership of their work. Careful reading of a contract can help prospective independent contractors ensure that this position is in their best interests.
