According to a study commissioned by the U.S Department of Labor, 30% of audited employers misclassify independent contractors and give these workers a 1099 tax form even though they should be employees receiving a W-2 form. Some companies deliberately misclassify workers in order to reduce the costs of labor and avoid paying employment taxes. Employers that utilize the services of independent contractors have the responsibility of ensuring that their employment statuses are classified correctly. The United States Department of Labor (DOL), the Internal Revenue Service (IRS) and individual states each have different sets of factors that are considered when determining whether a worker is an employee or an independent contractor. However, these employment classification guidelines can be complex, and difficult to understand. Sometimes, an employer might claim that a worker is an independent contractor in accordance with some factors. However, under a different set of classification factors, the worker would be considered an employee. It is therefore essential that you are aware of your independent contractor legal rights to ensure that you and your employees are protected on the job.
A worker is an employee if the employer provides training or guidance towards the completion of a project. One of the few advantages of working as an independent contractor is independence. When working as an independent contractor, your client does not have the right to control your project. You are in charge of your working hours, method of project execution, where you work, your service rate and subcontracting methods. In some cases, you also have property rights to some of the work you produce. According to the Communications Workers of America, Under the Copyright Act of 1976, an independent contractor who has created a work for an employer owns the rights to that work, except in limited circumstances. The employer can have property rights to own your work only if you signed a written agreement stating that the work was done for hire. Ensure you read your independent contractor agreement very carefully to avoid giving away the rights to your intellectual property.
An independent contractor agreement is vital in protecting your rights as a contractor. Before taking up a project, there should be a signed contract clearly defining the client and independent contractor relationship. This should state your employment status as an independent contractor, and not an employee. For the protection of both parties, a written agreement should include:
Classifying full-time workers as independent contractors with no reasonable basis for doing so can land you in a lot of legal trouble. It is therefore necessary for employers to determine the correct employment status of their workers. The IRS has guidelines for the classification of full-time employees versus contractors, after reviewing these guidelines a business owner must determine whether a worker is an employee or an independent contractor. Every client or business is required to pay all workers. If you are an independent contractor, you may either settle for a fixed or hourly rate hourly. However, ensure you have a written agreement to this effect. Similarly, you should also put into consideration your workers’ pay when negotiating your wages. Keep in mind that as an independent contractor you won’t be getting benefits like social security or workers compensation from your client.
Having more than one client per time while working as an independent contractor creates more opportunities for profit. As an independent contractor, you have the right to advertise and sell your services to other businesses. You are also not legally bound to work only for one client at a time. If you have an existing contract with a particular client, it is still within your rights to take on other projects. You also have the right to partner with other independent contractors to execute specific tasks of a project or the entire project.
If the conditions of termination are not discussed in your contract, your client can end the contract without prior notice. To protect your rights, ensure you discuss the termination process with your client before starting a project and include it in a written agreement. This should specify the reasons the contract may be terminated, the time period for termination notification and compensation for early termination. Once you have a signed independent contractor agreement, you have the right to file a claim if the client violates the terms. You should avoid starting any project without a contract in order to protect your rights as an independent contractor. Being an independent contract comes with a lot of benefits and opportunity for growth, but it also comes with a lot of risks. Make sure you mitigate these uncertainties with Contractor insurance.