When you work for someone but are not an employee, you’re called an independent contractor. Independent contractors have control over what they do and when they do it. They agree to contracts with new clients and work for themselves. They are often not bound to the same requirements as employees.
As a result, independent contractors do not receive benefits through the client. The independent contractor employs him- or herself, so it’s their responsibility to buy health insurance, have workers’ compensation coverage and so on.
The trouble is that many people treat employees as independent contractors when that is not the case. There is a fine line between working for yourself and being misclassified as an independent contractor when you actually are an employee. Here’s a little bit more about what to consider.
Defining an independent contractor
Many people choose to be independent contractors because they can set their own hours, choose which jobs to bid on, and work from home or at their leisure. The Internal Revenue Service is careful in defining an independent contractor. It states that there are requirements that must be met for a person to be an independent contractor and set factors that would make a person an employee.
For example, if you are paid by a client for everything you ask for or bid on, you might not be an employee. However, if they withhold taxes, decide whether to reimburse you for your expenses, provide tools, or dictate how or when you get paid, then you may actually be an employee.
Similarly, if the company controls when you work, what you wear or makes you follow specific company guidelines, then you are most likely an employee, not an independent contractor.
Your relationship with the other party matters, too. Written contracts don’t denote an employee-employer relationship on their own, but if you’re awarded benefits, pension plans, insurance or vacation pay, then it is more likely that you’re an employee, not an independent contractor.
Many businesses walk the fine line between classifying workers as independent contractors versus employees. It is normally better for the business to hire independent contractors, since they’re not liable for workers’ compensation coverage or other benefits. However, if you are misclassified, that’s a serious offense. The employer should be held responsible and pay you what you are owed along with any missing benefits if that’s the case.