For starters, what is an independent contractor?
There is no pat answer to that question as each state has its own rules regarding this. But there are some national (IRS) guidelines that any employer should be aware of when determining whether someone qualifies as an independent contractor or not.
The most basic concept to understand in this area is that individuals who are independent contractors have their own business, profession or trade. They are in business for themselves. They earn their money and receive their income from their own independent business. They do not depend upon one employer for their livelihood.
Some simple and more obvious examples would be: hiring a painter to paint your office; your attorney or accountant; hiring a bookkeeper to do your books who also does this for other businesses. None of these people depend upon you for their sole source of income, and you do not control their work hours, work location, etc.
Here are some specific points to look at when attempting to determine if a person you hired is an independent contractor (IC) or not. Review the following points in order to become familiar with what an IC is.
• Can the person earn a profit or loss from the work they are doing? If so, they could be an IC.
• Is the person told where to work, when to work, what he/she can or cannot do as part of the work? If so, they likely wouldn’t be an IC.
• Does the person offer their services to others in general? If so, they could be an IC.
• Does the person furnish their own materials, tools, etc. needed for them to do the work? If so, they could be an IC.
• Does the person work for more than one company or firm at one time? If so, they could qualify as an IC.
• Does the person invest in equipment and facilities? If so, they could be an IC.
• Does the person pay his/her own business and traveling expenses? If so, they could be an IC.
• Is the person told how to work, when to work, where to work by the hiring firm? If so, they would likely not be an IC.
• Does the person hire and pay his own assistants? If so, they could be ICs.
• Does the person set his or her own working hours? If so, they could be ICs.
• Does the person provide services that are an integral part of the hiring firm’s day-to-day operations? If so, they might not qualify as an IC.
• Does the person receive training from the hiring firm? If so, they might not qualify as an IC.
As mentioned above, the most basic thing to understand about whether a person is an independent contractor or not is: do they have their own business, profession or trade, and earn their income from their own independent business rather than one employer? If so, and most of the points we’ve gone over are present, they would likely qualify as an IC.
If you have any uncertainty on this subject, please consult your accountant or attorney before making any final decision regarding anyone’s qualifications as an independent contractor.