11 Things to Know Before You Sign an Independent Contractor Agreement

Independent Contractor Agreement Many employers try to save money on taxes and escape liability under employment laws by getting employees to sign Independent Contractor Agreements. There are some advantages to being an independent contractor, but most people labeled as contractors are really employees. Here are the top 11 things you need to know before (or even after) you sign an Independent Contractor Agreement:

1. Intellectual property. If you are creating art, written work, computer programs or other creative works, then it may be an advantage to you to be an independent contractor. Generally, you own the copyright to works created as a contractor. However, be very careful when you sign an agreement. If the contract says the work you are creating belongs to the company, you are probably giving up one of the main advantages to being a contractor.

2. Taxes. As a contractor, you'll pay both halves of your Social Security and Medicare taxes. If you're an employee, the employer pays half. This is a big chunk of pay to give up, so be sure you're really a contractor before you sign. The good news is that the IRS takes a dim view of employees misclassified as contractors. There's even a form to fill out if you think you're misclassified, by which you might be able to get your employer to pay what they owe.

3. Control. If you perform services for someone and they control what you do and how you do it, you're probably an employee. An employer controls the time, place and manner of your work. That means if they watch your hours, make you come in the office, make you ask permission to take time off, or supervise your assignments, you may be an employee. Independent contractors do the work where, when and how they choose. Nobody tells them what order to do the job in, what hours to work, or when they can take off.

4. Equipment and supplies. Do they tell you what equipment to use? Where to buy it? Do they provide a desk, computer or tools? If so, that's a good indication that you're an employee. Independent contractors generally use their own equipment and supplies.

5. Assistants. If you are told who will assist you and can't choose anyone you want to help you with your tasks, then you may be an employee. Independent contractors can usually hire their own assistants, or choose to work alone.

6. Evaluations. If you are evaluated about the process, details and methods of your work, you may be an employee. An independent contractor is evaluated on results -- the end product, not the procedures used.

7. Training. If the company trains you on how they want the job done and the specific procedures to be used, then this is a good indication that you're an employee. Training for independent contractors should be minimal -- instruction on the overall results needed only.

8. Financial control. Employers will reimburse many expenses, while contractors may have to purchase their own equipment. Pay for employees is normally done by the hour, day or week. Contractors are more frequently paid by the job, although are sometimes paid hourly. A contractor will have more opportunity to make a profit or take a loss than an employee.

9. Opportunity to work elsewhere. Contractors frequently advertise and are considered free to take work from other companies. Employees usually have to work for a single employer only. If you want to be a consultant, free to work for many companies, then you're probably best off as a contractor.

10. Benefits. If the company provides insurance, sick days, vacation time, pension or other benefits, then you are likely an employee.

11. Indefinite time. If you are hired for an indefinite period of time, as opposed to working on a specific project or series of projects, then you may be an employee.

There is generally no one factor that will determine that you're an employee. The IRS and the courts weigh all the factors and look at the total picture of your employment. If you think you are misclassified, you do have options. Just because you went ahead and signed an agreement saying you were a contractor doesn't necessarily make it so. You can talk to the employer about it if you still work there. You can also fill out that IRS form and see what happens. If you are fired for objecting to being misclassified, you may be protected from retaliation as a whistleblower.

Whether or not you are an employee affects your rights under discrimination, wage, hour, overtime, copyright, family/medical leave and other employment laws. It also affects you in the wallet, in the form of taxes, Social Security, Medicare and benefits. If you've left a company and think you might have some rights as an employee, you will probably want to contact an employment lawyer in your state to find out.


Next: Independent Contractors Beware: Your Employer May Be Taking Advantage of You


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yesika

Im a seamstress and someone said they cant telling me how to make the product I make for them. That doesn't sound right because all the product's I make have a patent. So all they ask of me is to fallow their design and time frame, that seems reasonable to me lol

June 04 2014 at 10:43 AM Report abuse rate up rate down Reply
Steve

I just recently resigned from a company in which I was 1099 and never signed a Independent Contractor Agreement. The company paid me on a commission basis. Am I responsible for handing over my book of business to the company?

April 17 2013 at 10:50 AM Report abuse rate up rate down Reply
shawnee320

When you drive a commercial vehicle GVW 80,000# over-the-road, and the owner of the unit controls what commodity will be hauled, and what direction that unit will travel are you classified as a independent contractor? My understanding of an independent contractor is that you operate under a F.I. number, and you provide a service to several customers with your own equipment. How do I justify being a independent contractor with very few deductions at the end of a year?

July 14 2011 at 6:32 PM Report abuse rate up rate down Reply
Space Vegetable

You can also do contract work via third-party agencies. This can be a good option if you don't want to deal with tax headaches. Plus, these folks do the marketing to find clients and many offer some level of benefits. You usually have to pay the costs yourself, but you'll be getting group rates as opposed to the more expensive individual rates.

I've been working as a contractor since 1992 and love it. I have freedom and get paid for every hour I work (no unpaid overtime like captive employees have to do). I learn new things all the time, so I don't get bored, and the pay is much better than I'd get as an employee, even taking benefits into account.

People who complain about independent contractors and businesses "taking advantage" of them, probably shouldn't be working as independent contractors. If you're looking for benefits and security, get a permanent job. Don't ruin it for those of us who choose this wonderful lifestyle.

It's sad that there are so many restrictions on being able to work this way for those of us who choose to do so. Unions are partly responsible for this, since they don't like that we independent folks negotiate our own deals and don't need them in the middle of the process, taking a cut of our pay. Disgruntled contractors who really wanted to be employees also helped drive all these restrictions. IMHO, companies should be free to hire and pay as they choose and shouldn't be responsible for providing benefits. After all, you don't get your house and auto insurance from your employer. Why should your health insurance be any different?

June 25 2011 at 4:43 PM Report abuse rate up rate down Reply
Ms Tweety

Good pep r doing IC work if you work part time and make mim wages gets u about 200 a week and they take a 100 out of your check.

June 22 2011 at 4:52 PM Report abuse rate up rate down Reply
Carolyn

Wow, so much invective! My husband and I are independent contractors and love it. First, we have set up an LLC so that we do not have to have a 1099 filed (some file anyway but that's fine). Second, ALWAYS make sure your employment taxes are paid. Never, never, never cheat the IRS as it will at some time come back to haunt you. It is your responsibility as a contractor to make sure you do things legally. Third, I have NEVER had the opportunity to own IP from a job. It simply isn't done in the sciences. Whoever foots the bill for the intellectual property owns it - pure and simple (regardless of what the post says). Now, they HAVE to put your name on a patent if you provided significant input, but you don't own it (and at $100K+ to try to get a simple patent you don't need the headache). In my experience, almost 100% of the problems of being an (professional) independent contractor occur because the contractor did not make sure there was clarity and did not follow the law (either knowingly or unknowingly). The beauty of being a contractor is that you don't have to sit through those endless meetings, etc., but you do have to have a good ability to be a self-starter and in control.

June 22 2011 at 2:29 PM Report abuse +1 rate up rate down Reply
1 reply to Carolyn's comment
EmployeeAtty

You're right Carolyn. When independent contractors are truly independent, the big advantage is freedom to do it your way. The biggest problem is that employers want total control, yet don't want to pay the taxes and benefits that go with control.

June 23 2011 at 12:28 AM Report abuse rate up rate down Reply
mrssolsteria

REPORT EMPLOYERS OF ILLEGAL ALIENS TO YOUR GOVERNOR, BORDER PATROL AND THE I.N.S. TIME FOR AMERICANS TO STAND UP FOR AMERICA AND HELP GET RID OF ILLEGAL ALIENS AND THEIR ANCHOR CHILDREN THAT ARE DESTROYING OUR COUNTRY.

June 22 2011 at 12:29 PM Report abuse +1 rate up rate down Reply
richardhhd

Hello. I'm a certified master auto technician,among other things, and have spent 40 years in the automotive service industry.Many times I've been hired as an independent contractor and yet treated as an employee or worse. Especially lately most employers in my field use this technique just to aviod paying taxes, cutting down on any benefits and avoiding any liabilities.Otherwise nothing changes, I have no rights at all in their shop, their hours, their orders and demands like any other employee.Bottom line is that if I have to supply the workmanship, the license, the experience, the tools and equipment, and in many cases the customers, what do I need you for? To take most of my profits and put up with your demands? I'm better off just getting my own space and openning up a shop on my own.The only down side to that is the initial costs involved which many of good but underpaid technicians can not absorb, so they end up making others rich at their expense.Many of the auto repair shop owners are aware of this situation and take advantage of it to the max under the protection of the law.Too bad, but unfortunatelly that's the world we live in today, in this ' cut throat ' society. I'm sure the same applies to other professions as well. Thank you.

June 22 2011 at 12:19 PM Report abuse rate up rate down Reply
1 reply to richardhhd's comment
EmployeeAtty

Reporting them to the IRS or the Department of Labor might be the way to go on this Richard. They shouldn't get away with it if they're truly not complying with the law.

June 22 2011 at 2:15 PM Report abuse rate up rate down Reply
dlshampo

Independent Contractor benefits the EMPLOYERS and really screws the Employee: No Tax withholdings - not good! You loose future Socical Security Benefits, future Medicare, and you may not collect Unemployment benefits either. Also, instead of getting a Refund at the end of the year from the IRS and your State: YOU PAY TAXES on all the Gross Income that is stated on the 1099's... Who benefits from this set-up? ILLEGAL ALIENS and DEADBEAT DADS!!!

June 22 2011 at 12:10 PM Report abuse rate up rate down Reply
HEY DAVID

once again the the bussines is the bad guy. How about don't do something asked of you and then complain later. No one can force you to act as an IC. Another reason for high unemployment. The more gov't interference the less a biz. will hire.....

June 22 2011 at 8:54 AM Report abuse +1 rate up rate down Reply

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