Independent Contractor - some technicalities...

Author: Yana A. St. Clair, Esq.

Independent Contractor - some technicalities...

In our last issue, we began a discussion on the differences between being an independent contractor, versus a full or part time employee.  This is a topic that is of crucial importance to both the employer, and individual providing them with services. 
As previously discussed, there are many benefits for an employer to claim a service provider as an independent contractor, as it frees the employer from providing many financial benefits, including, but not limited to, medical and tax related obligations.
This article is intended to assist both sides in determining whether to classify an individual as an employee or an independent contractor. While, as provided by the Internal Revenue Service (IRS), an obvious sign to determine a service provider's status is partially based on the type of tax form one receives, this is in no way indicative, or conclusive, of the actual classification.

For a quick summary, if you receive a tax form that labels you as an independent contractor, which of course varies by your region of employment, then you might assume that you are by law, classified as an independent contractor, as opposed to an employee.
However, this simple test does not begin to cover all the legalities surrounding how the law will actually treat you.

The best way to approach this difficult to grasp idea, is to ask yourself a series of simple questions, all of which stem from the concept: Do I work for myself?? 
Generally speaking, an independent contractor's work is not controlled by the payer, in the sense that while they have the final determination on the work performed, they have no right to direct the manner and details in which the job comes to fruition, as stated by the IRS.
Additional factors which may easily assist you in determining whether you are an independent contractor, is the amount of freedom, not only professionally, but time related, which you are provided. 
A big question is, can you set your own hours? As an independent contractor, you should be permitted to work on your own schedule, naturally as long as you complete the project involved on time, as per your agreement with the payer. 
If the individual who hired you requires that you go into his or her office on a daily basis, at a set time, chances are you qualify more as an employee. 

Next, but equally important, considering independent contractors are not given the benefits of vacation time, or sick days, you should not have to ask for such time off, or be required to explain yourself, for any such time needed.  This of course also depends on any agreement you may have signed or reached with the payer, regarding time constraints for finishing your project in question.
This employment concern is a crucial topic, as depending on your classification, despite the fact that you will lose many benefits which you have legally earned as an actual employee, it is imperative that you are aware of these issues in order to properly file your taxes, and avoid potential penalties.

If one is labeled as an independent contractor, then he or she is required to pay a Self-Employment tax, which covers Social Security and Medicare taxes primarily for individuals who work for themselves, which would otherwise be at least partially covered by an employer. 

In addition to the loss of these valuable benefits, a person in this position might incur substantial fines. For example, many jurisdictions require a city business tax if an individual is considered to be self-employed, and these fines can build up over the years if someone is not fully aware of their status.

In closing, a rule of thumb is to double check with the company or individual employing you, if you are treated as an employee or independent contractor as far as their accounting is concerned, and then to follow up on the local laws in the region where you are providing services, to ensure that this classification is in fact accurate.

Disclosure: Please note that none of the information contained within the above column is to be considered legal advice.

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BeijingSifang June 2016