What is an independent contractor?
An independent contractor is a person contracting to do work for another person, and in doing so, does such work according to his or her own processes and methods while not being subject to the control of another, but remains subject to what is specified in a mutually binding agreement. Simple right? Just kidding, we know it isn't.
In fact, the Internal Revenue Service has about 20 different factors that they consider when determining whether someone is acting as an independent contractor or an employee, despite being labeled as an independent contractor.
The bottom line is, figuring out what qualifies as an independent contractor is not as easy as it sounds. However, because each one of these 20 factors fits into one of three main categories, by understanding these categories, you can better determine whether someone can be classified as an independent contractor. The categories these 20 factors fall into are behavioral control, financial control, and type of relationship between the parties.
Does the person that hired the worker have control over how the worker does his or her job and what he or she does while working? If the worker gets his or her direction from the person that hired him or her, it is more likely that an employee-employer relationship exists instead of an independent contractor relationship. If the person contracted to do the work has more of a role where he or she is not supervised, it is more likely that an independent contractor relationship exists.
Does the person that hired the worker have financial and/or business control over the worker? Factors indicating that the person who hired the worker has a significant investment in the work accomplished, is reimbursing the worker for all or some of his or her business expenses, or has the ability to incur a profit or loss of his own in having the person do the work, lean towards an understanding that the worker is an employee rather than an independent contractor.
Type of Relationship
How do the parties perceive their relationship? If the worker receives employee benefits, such as insurance for example, the individual is likely to be classified as an employee.
The Independent Contractor Agreement
Upon being hired as an independent contractor, an individual or entity will generally have those independent contractors sign an independent contractor agreement.
Having an agreement in place can help establish whether the worker will be classified as an independent contractor or an employee. Going through the process of having an independent contractor agreement sets the inference that the parties had the intention to create an independent contractor relationship, rather than an employee-employer relationship. While having an independent contractor agreement doesn't guarantee that the worker will be classified as an independent contractor rather than an employee, it is nevertheless essential to have to protect the parties involved.
An independent contractor agreement governs the working relationship between the independent contractor and the individual or entity who has hired them. Because independent contractor agreements can be very complex, detailing the full scope of the relationship between the parties, it is extremely important to have a business lawyer review your independent contractor agreement before you sign it, regardless of whether you are the worker or person hiring the worker.
Julian Cordero is an Attorney, Business Strategist, and Music Producer. Oh and he blogs too! Julian is licensed to practice law in New York and is the Managing Attorney of Cordero Law LLC, a New York City based law firm focusing on Business Law, Entertainment Law, and Intellectual Property Law.