Independent Contractors

An independent contractor is a worker who contracts services to a business. An independent contractor, also known as a "1099 contractor," is not an employee even though he or she provides services to the employer. Because independent contractors are responsible for paying their own taxes, they are considered self-employed.

It is difficult to generalize about which types of workers are considered independent contractors and which are not. Therefore, employers should consult an lawyer to determine which designation is appropriate for each worker.

Independent Contractors vs. Employees

If you are pursuing employment with an organization that requires you to fill out a W-9 form, they may be planning to treat you as an independent contractor rather than an employee. An attorney can help you clarify your status. We can explain the subtle differences between employees and independent contractors and examine your job functions to determine how you should be classified.

When an employee is hired for a job, he or she is required to fill out a W-4 form. These forms are federal tax forms that allow employees to withhold the correct amount of federal income tax from each paycheck. At the end of the tax year, the employer issues a W-2 form that states how much the employee was paid during the year and how much was withheld for tax purposes. Employers are required to complete a W-2 for each employee who received pay as part of an employment agreement.

When an independent contractor is hired for a job, however, he or she is required to provide a signed W-9 form, rather than a W-4. At the end of the year, independent contractors receive a 1099 to record their income from a client. Each organization that employs independent contractors must complete a 1099 and submit a 1096 form to the IRS for each contractor. A worker who is designated as an independent contractor can deduct his or her business expenses on his or her yearly tax return. An independent contractor may also be obligated to pay estimated quarterly state and federal income taxes.

What is an Independent Contractor?

Many factors influence the decision to designate a worker as an employee or an independent contractor. If the business provides tools, reimburses the worker for expenses, or exercises other types of control over the business aspect of the worker's job, then the worker is likely an employee. Further, if the company is able to control the way in which the worker performs the job, the worker should likely be classified as an employee. If the company provides benefits such as insurance, a pension plan, or vacation pay, the worker will likely be categorized as an employee rather than an independent contractor. Generally, independent contractors are considered to be a separate entity from the business.

Although any one of the above factors can be persuasive to determine how the worker should be classified, no one factor is conclusive. Instead, the factors must be considered as a whole. Professions with a high percentage of independent contractors include:

  • Doctors
  • Veterinarians
  • Dentists
  • Accountants
  • Contractors
  • Lawyers
  • Subcontractors

Generally, an independent contractor has complete control of how the work in question will be performed. The company paying for the services will only have the right to control or direct the result of the work, not the methods used to reach that result.

A Lawyer Can Explain Tax Consequences

An employer is responsible for withholding income taxes for employees as well as paying taxes for Medicare and Social Security. Employers are also responsible for paying unemployment taxes on wages paid to employees. If you are unclear about the difference between independent contractors and employees, contact a lawyer to clarify the distinction. The attorneys at Mays & Kerr can help you protect your rights and interests.