An independent contractor or self-employed worker provides services to a company but is not an employee. Retained to perform work, often under a written contract, whereby control is subjected to the end result and not the manner of performance. Generally you do not have to withhold taxes, Social Security taxes, medicare taxes or pay unemployment taxes on payments made to an independent contractor. However, if you make a mistake classifying an employee as an independent contractor, you can be held liable for employment taxes, plus a penalty.
People such as lawyers, contractors, subcontractors and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. However, whether such people are employees or independent contractors depends on the facts in each case.
The general rule is that an individual is an independent contractor if the person for whom the services are performed have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.
Example: Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. She is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. She also performs additional electrical installations under contracts with other companies that she obtained through advertisements. Vera is an independent contractor.
- Statutory employee
- Statutory nonemployee
- How to determine if a worker is an independent contractor or an employee?