Do you work for pay, but are not a permanent employee? If so, you’re probably considered an independent contractor. That simple definition, however, is just the tip of the iceberg. This status affects your independent contractor legal rights, taxation, and even the way you get the job done. That’s why it’s important to understand the implications and how you can look out for yourself and your business.
Are You Really an Independent Contractor?
In a lot of industries, people avoid becoming an independent contractor because the word itself sets off warning bells. Companies will try to hire people as independent contractors, and then expect them to work the way employees do. This means the employer doesn’t have to pay taxes for the employee or provide employee benefits. Companies have fewer obligations to an independent contractor than to an employee. Besides the fact that this is illegal, it also reduces employee loyalty and scares off talented people.
On the other hand, in some industries it just makes sense. Contractors are often hired for specific jobs that require their expertise. Rather than being permanently on a payroll, for most contractors, it makes more sense to take on one job at a time with the freedom to move around to whatever employer needs them at the given moment. If this is the decision you’ve made, it’s important to know your independent contractor rights so that you can grow your business securely and comfortably.
Work Your Own Way
According to the IRS, an employer gets to request specific results from both independent contractors and employees, but can only dictate to employees the details of how to achieve those results. If you’re an independent contractor, how, where, and when you do the work is completely up to you, and is one of your independent contractor rights, as long as you deliver on whatever you promised.
A Formal Contract
A contract defines the exact scope of the work you’re supposed to do, a schedule, and terms for your independent contractor payment rights. The more detailed information you include, the better off you’ll be down the line. The contract can protect you in the future and in the meantime is an opportunity to make sure you and your client are on the same page.
Managing Your Own Business
Among other things, working as an independent contractor means that your client gets no say in your relationships with other people. One of your independent contractor rights is that whoever you’re working for usually can’t control who you hire or fire, including subcontractors, and they generally can’t control how you market yourself or whether you take on other clients.
Independent Contractor Termination Rights
Ideally, your contract should outline when and how your relationship with an employer can end. If that’s not the case, an employer may be within their rights to simply walk away. Even if that happens, you have the right to be paid for any work you’ve already done, even if the employer isn’t happy with it. The exception is if the employer can prove that your work didn’t live up to what was promised, in which case they may be able to cite breach of contract.
Unlike for an employee, no one is required to pay unemployment tax on your behalf. That means that if your employer terminates your contract, you won’t automatically receive unemployment benefits. However, most states will allow you to pay unemployment tax on your own, which will make you eligible to receive benefits if you need them.
Independent Contractor Rights in the Workplace
There are certain rights granted by federal law to employees that independent contractors don’t have. For example, as an independent contractor, you cannot sue for discrimination or harassment and your employer may not be obligated in certain safety regulations. However, some states have found ways to enact laws protecting independent contractors. If you run into a problem, make sure to check the laws in your state.
The Responsibilities of an Independent Contractor
As an independent contractor, you are in charge of paying taxes on your own. You will usually be expected to provide your own equipment and may even have employees of your own. So while independent contractor status comes with a lot of freedom, it is also much riskier.
So How Can You Protect Yourself?
One of the reasons many people prefer being employed is that it offers a lot of security: employees are covered by their employer’s insurance and it’s the employer’s reputation on the line. For an independent contractor, a good independent contractor insurance policy can help to provide that sense of security. General liability insurance covers injury and property damage caused by accidents that happen in the course of your work and professional liability protects you if a client claims you did a bad job. These two policies are the safety net that protects your business from large claims, help you avoid lawsuits, and maintain your reputation as a trusted professional.
Being an independent contractor can be intimidating. But by knowing your rights and taking the proper precautions, you can enjoy the freedom that comes with being your own boss.