The number of independent contractors in America will continue to increase as businesses seek ways to streamline operations and remain competitive.
In 2006, the Department of Labor stated that 42.6 million of Americans, or 30% of the workforce were classified as independent contractors. It is estimated by that 2020, nearly 60 million people, or 40% of Americans will be classified as independent contractors.
However, a business must be careful not to mischaracterize a worker as an independent contractor instead of employee. Irrespective of the position’s title, i.e., freelancer, project worker, construction worker, temporary worker, specialists, a business classifying a worker as an independent contractor must be able to show the following:
- Control. A business cannot exercise direct control over how the contractor will perform the work. This includes telling contractors when, how, and where to work. It may also entail telling the worker what supplies to buy, where to buy them, and how to perform certain tasks. However, companies may still give directives regarding the project objectives and elements required for the completion of the assigned task(s).
- Evaluation. A business may evaluate the end result of an independent contractor’s work. However, they may not measure the specific details that led to the end result.
- Training. A business should not provide periodic or ongoing training to an independent contractor. These training activities can show that an employer-employee relationship exists.
- Opportunity for Profit/Loss. An important litmus test, the opportunity to profit, or lose funds for work performed shows that an individual is an independent contractor.
- Payment. Independent contractors may be paid for the total sum of work to be performed, or on an hourly basis until the assigned task is completed.
- Benefits. Offering benefits such as a pension, vacation time, profit-sharing, etc., to an independent contractor typically establishes the individual as an employee rather than as an independent contractor.
Companies that retain the services of independent contractors are not required to pay Social Security, Medicare, or income taxes for the contractor. These are handled by the contractor. If a business is uncertain whether an individual should be classified as an employee or as an independent contractor, they can request clarification from the IRS via Form SS-8.
Companies may also seek the counsel of a commercial attorney in Illinois who can review the relationship a business has with its employees and independent contractors. Reviewing this relationship can ensure that a business complies with the law and won’t be subject to fines, penalties, and lawsuits down the road.