Am I An Employee or Independent Contractor?

Are you an employee or independent contractor? You can find out for sure in the paperwork that a client should be providing upon offering you the opportunity.

Before a client "hires" you for an opportunity, they may provide an independent contractor agreement. Some organizations have really short forms (1-2 pages) while others have longer forms. There's really no right or wrong way to do it, but essentially this document outlines both your and the company's responsibility for the duration of your working relationship.

So, what can you expect from this agreement?

In most cases, it will begin with something like this:

This Agreement is made this _____ (Day) day of _______________(Month), __________ (Year), by and between ___________________________________________ (Company),

hereinafter referred to as “Company,” and ___________________________________________ (Worker), hereinafter

referred to as “Contractor”

That part is pretty self-explanatory. It outlines who is who and you can easily scroll through the document and see what the role is for the COMPANY and what the role is for the CONTRACTOR.

Much of the rest of the agreement is dependent on how specific the company is. When thinking about whether you will really be an employee or an independent contractor, here are some common things to make sure of:

• Your work with others is not limited. Non-compete clauses have no place in contractor/company relationships.
• You are allowed to choose the way you do the work as long as it meets the company's expectations. That means - if they want you to create materials for their website, they cannot tell you that you must use a specific program or work at certain hours of the day.
• You don't have to be supervised. This doesn't mean that the company doesn't have a right to review your work for quality, but rather the company cannot impose a restriction to watch over you during your entire workday (i.e. they can't tell you that you can't get on Facebook or can only take breaks at specified times).
• Taxes are not deducted from your payment. As an independent worker, you are responsible for paying your own income taxes. Along with health insurance concerns, this is one of the downsides to freelancing.

The IRS discusses (in detail) what separates an employee/employer relationship from a contractor/company relationship. It's important to make sure that you are not being treated as an employee as that would require your client to pay certain other taxes (Medicare & Social Security). For both you and the client's sake, the relationship should be clearly defined. If they need significant control over your work, you're not a contractor.

I worked for a company before (I won't mention the name) in a virtual call center. I was considered an independent contractor, but they had many "rules" for how the work must be done. Long story short, there ended up being a large class action lawsuit against them for misclassifying workers all around the country. The company lost. They had to pay a substantial amount plus damages. I opted out of the lawsuit, but I think this is a good example of how simply calling a common law employee (term coined by the IRS) an independent contractor.

People: know the law. Know your facts. You are a freelancer. Bask in the true joy of freedom while working.

Posted in: employee,independent contractor,IRS