An independent contractor is a person, business, or corporation that provides goods or services under a written contract or a verbal agreement. Unlike employees, independent contractors do not work regularly for an employer but work as required, when they may be subject to law of agency. Independent contractors are usually paid on a freelance basis. They retain control over their schedule and hours worked, jobs accepted, and performance monitoring. They can also have a major investment in equipment, furnish their own supplies, provide their own insurance, repairs, and other expenses related to their business. They may also perform a unique service that is not in the normal course of business of the employer. Independent contractors can work for multiple firms and offer their services to the general public.
The IRS has a general rule that an individual is an independent contractor if the payer has the right to control or direct only the result of the work. Independent contractors are considered self-employed and must report all their income and expenses on Schedule C of Form 1040 or Schedule E if they have profits or losses from rental properties. They must submit self-employment taxes to the IRS, usually every quarter, using Form 1040-ES. Independent contractors can be freelancers or run their own entity, such as a sole proprietorship, corporation, LLC, or limited liability partnership.
The exact definition of an independent contractors role is not set in stone, but the IRS and many states have adopted common law principles to define an independent contractor. These rules focus primarily on the level of control an employer has over a service or product, meaning, whether or not the employer actually defines what is being done and how it will be accomplished. Certain factors will define a worker as an independent contractor in every case: not relying on the business as the sole source of income, working at his or her pace as defined by an agreement, being ineligible for employer provided benefits, and retaining a degree of control and independence.
