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Setting Expectations: An Independent Contractor Agreement explicitly sets out the expectations and parameters of the work to be done, the compensation, and the nature of the relationship itself.
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When should I use an Independent Contractor Agreement?Ī business owner needs an Independent Contractor Agreement for several reasons.You may want to consult with a Rocket Lawyer On Call ® attorney for legal advice specific to your business practices and worker classification. Classification can be tricky and very specific to how a business operates.
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If you misclassify employees as independent contractors on your tax return, you'll be responsible for paying employment taxes for that worker, so double check all Employment Agreements and Independent Contractor Agreements to be sure your working relationship is clearly defined. Generally, any payment in excess of $600 will require a 1099-MISC form. You may have to file information returns (form 1099-MISC) to report certain types of payments made to independent contractors. Independent contractors handle taxes related to social security, medicare etc.Įmployers have to produce a W-9 to be completed by the independent contractor. You must complete a W-2 form for each employee.Įmployers do not have to worry about the above tax issues for employees. You must withhold state and federal income tax. You should also be aware of tax treatment differences between employees and independent contractors. The expense of having to pay for these benefits out of pocket are often factored into the contractor's rates Independent contractors don't receive company benefits, such as paid holidays and vacations, paid sick days, and health insurance. They usually set their own hours, have their own process for completing projects, and own their own equipment. Independent contractors are not typically subject to the same level of control by the hiring client. Use of equipment owned by the employer and provided to the employee for work purposes. Mandatory attendance at meetings and other functions. Where the work is done, either at the workplace itself or another location. In an employer-employee relationship, the employer typically controls all of the following factors: How workers are classified is determined by the amount of control an employer exercises over their work. Choosing between hiring employees or independent contractors is an important decision that defines not just working relationships, but taxation as well.