Independent Contractor Problem

Independent contractor Problem

An Independent contractor is different from a regular employee. It is important to outline the role of an independent contractor defining in detail the relationship an independent contractor has with the employer before beginning work. What defines an independent contractor has been outlined by common law, the Fair Labor Standards Act, and some decisions by the courts. The IRS and many states have adopted common law principles to define an independent contractor. An independent contractor is a person, business or corporation that provides goods or services to another entity under certain specific terms in a contract or verbal agreement. Common law defines independent contractor status by method of compensation. A person is an employee if they are on the employer’s payroll and receives a steady paycheck where as an independent contract receives payment differently. Other factors to consider when describing an independent contractor include:

* Does the worker supply their own equipment, tools and materials?

* Can the worker be discharged at any time and can they choose whether or not to go into work without fear of losing employment?

* Is the work temporary or permanent?

* Does the worker control the hours of employment?

* Skill required for the work being done

* Each party’s level of loss in the relationship

* Degree of control over work and who exercises that control?

Courts also exercise the “right to control” test. The relationship is that of an employer/employee if the hiring entity controls the way work is performed and product or service is delivered. The relationship is that on a hiring entity/independent contractor if the employer does not have control over how the work is accomplished and simply gives request of an outline. For tax purposes in a hiring party/independent contractor relationship, a hiring party is not required to make any state and federal unemployment tax, social security tax and...