Independent contractor

Independent contractor is a term used to describe a person or entity contracted to perform work for—or provide services to—another entity as a nonemployee. As a result, independent contractors must pay their own Social Security and Medicare taxes. The payer must correctly classify each payee as either an independent contractor or employee.

Definition

An Independent contractor is a natural person, business, or corporation that 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.

Legal Considerations

In the United States, the Internal Revenue Service (IRS) differentiates between an independent contractor and an employee for the purpose of payroll taxes and withholding taxes. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done and how it will be done.

Advantages and Disadvantages

There are both advantages and disadvantages to being an independent contractor. On the positive side, independent contractors often have more control over their work and can choose when and where to do it. They may also have the opportunity to negotiate their pay rates. On the downside, they do not receive the same benefits as employees, such as health insurance and retirement plans, and they are responsible for paying their own taxes.

See Also

• Employee
• Employer
• Contract
• Internal Revenue Service
• Tax

References

Independent contractor Resources
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