Independent contractors might not continue to work with clients once the project is over. Typically, when a company hires an employee, there’s the expectation that the employee will continue to work for the company for the long term, even after a project ends. How long you expect the relationship to last also varies based on whether you’re an employee or an independent contractor. Usually, independent contractors don’t receive benefits, like retirement or health insurance, from the clients they work with. Your relationship with the entities or people you work with also determines whether you’re an independent contractor or an employee. Although they can negotiate with their employers when it comes to the amount they earn, they don’t have full control over the price of the project or the wage they receive. Your fee might include the cost of materials or that might be a separate expense for your client.Įmployees of a company typically get paid by the hour or on a salary basis. You might charge a client a flat fee for a project or charge them a day rate. Usually, as an independent contractor, you set your own rates and fees. How the company you’re working with pays you also helps to determine whether you’re an independent contractor or not. If you’ve purchased a lot of equipment or if there’s the expectation that you’ll bring your own tools to the job, you’re most likely an independent contractor. One factor that can help identify an independent contractor versus an employee is the amount of money you’ve invested in your work. There’s the expectation and assumption that you’ll already be experienced and will know exactly what you need to do to complete a project.īusinesses and individuals who hire independent contractors also have little financial control over the contractors. Usually, independent contractors don’t receive training from the business or individual they are working with. If you’re not an employee, a company can’t tell you exactly how to perform a task or give you step-by-step instructions. They also can’t tell you where to do the work, what tools you can use to complete a job or how to approach a project.Īnother part of the behavioral rule focuses on the type of instructions a business or individual can give you as an independent contractor. They can’t tell you to show up to start work at 7 a.m. When you’re an independent contractor, the business or individual you work with has little control over your behavior. These federal income tax rules focus on three distinct areas: The Internal Revenue Service (IRS) has specific rules that help to determine whether someone qualifies as an independent contractor or an employee of a business. There can be some confusion over who’s an independent contractor and who’s an employee of a company. If you are an independent contractor, your clients might be other individuals, such as people who are looking to hire a company to build their home, or other businesses, such as contractors or developers who need someone to complete a portion of a project for them. What Is an Independent Contractor?Īn independent contractor is an individual who provides a service or trade to the public. Whether you’re new to being self-employed or could use a refresher when it comes to your tax obligations, read through our tax tips for independent contractors to learn more about what you can and should do to ensure you don’t get penalized. It’s up to you to make sure you pay what you owe on the right schedule. As an independent contractor, no one is withholding taxes for you. If you worked with a company as an employee, that company would be responsible for withholding taxes from your paycheck. But with that freedom comes some responsibilities, particularly when it comes to your taxes. You also have freedom when it comes to how you go about completing a project. You can choose what projects you take on and what clients you work with. There are definitely some perks to being an independent contractor in the construction or real estate industry.
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