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MyWikiBiz, Author Your Legacy — Thursday December 05, 2013
An independent contractor is a natural person, business or corporation which provides goods or services to another entity under terms specified in a contract or within a verbal agreement. Unlike an employee, an independent contractor does not work regularly for an employer but works as and when required, during which time she or he may be subject to the Law of Agency. Contractors often work through a limited company which they themselves own, or may work through an umbrella company.
In the United States, any company or organization that pays more than $600 to an independent contractor in one year is required to report this to the IRS as well as to the contractor, using form 1099-MISC . This form is merely a report of monies paid; independent contractors do not have income taxes withheld from their pay as regular employees do. When filing taxes, the independent contractor can deduct from his declared income work related expenses, such as tools or safety gear needed for the work that were purchased by the contractor himself.
Independent Contractor versus Employee
Sometimes, it is not a straightforward matter to determine who is an independent contractor and who should be classified as an employee. To make a determination, the IRS advises taxpayers to look at three aspects of the employment arrangement: financial control, behavioral control, and relationship between the parties . While some independent contractors may work for a number of different organizations throughout the year, there are also many who retain independent contractor status even though they work for the same organization for the entire year.
Generally speaking, independent contractors retain control over their schedule and number of hours worked, jobs accepted, and performance of their job. This contrasts to regular employees, who usually work at the schedule required by the employer and whose performance is directly supervised by the employer.
Examples of occupations where independent contractor arrangements are typical:
- Taxi cab drivers
- Lawn care workers
An independent contractor in tort
The employer of an independent contractor is generally not held vicariously liable for the tortious acts and omissions of the contractor, because the control and supervision found in an employer-employee or Principal-Agent relationship is lacking. However, vicarious liability will be imposed in three circumstances:
- where the contractor injures an invitee to the real property of the employer,
- the contractor is involved in an ultra-hazardous activity (one likely to cause substantial injury, such as blasting with explosives), or
- the employer is estopped from denying liability because he has held out the independent contractor as if he were simply an employee or agent.
See also: IRS Reclassification
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