Since independent contractors are their own business unit, a client cannot determine their hours of work. They are solely responsible for the execution of the employment agreement – when they work and the hours they keep are entirely up to them. (6) declare to the public that the work or services must be provided by an independently established enterprise. [v] Classifying an employee as an independent contractor without a reasonable basis to do so makes the employer liable for payroll tax. Some employers who can provide a reasonable basis for not treating an employee as an employee may have the option of avoiding paying payroll taxes. See 1976 PDF Publication, Section 530, Employment Tax Relief Requirements for more information. Independent contractors also typically have what the IRS calls a “significant investment” in their business — whether it`s equipment, training, and licensing — and aren`t reimbursed for expenses like fuel, tools, and office supplies. Unlike employees, independent contractors are generally allowed to work for other businesses and, like any other small business, can make profits or losses. If you are unsure whether your employees or independent contractors are properly classified, contact an experienced labor lawyer at Gignilliat, Savitz and Bettis, LLP. The issue of withholding taxes is crucial to the dichotomy. It is the employer`s responsibility to withhold federal and state taxes on an employee`s income.

[vi] The employer is also required to pay the withholding taxes to the IRS and any applicable government agency. [vii] People who work as independent contractors, on the other hand, have to pay their own income taxes, and employers are not required to withhold taxes (in most cases). Tangible discoveries and inventions, on the other hand, are subject to patent law. Under patent law, the rights to the object belong to the original creator and are therefore generally held by the employee or independent contractor. As in the Copyright Act, an employer can take control of these rights if there is an assignment provision in the employment contract or in the contract for independent contractors. Let`s say you run a coffee shop and pay a lump sum to a graphic designer to create new menus and business cards for your coffee over a period of time. In this case, you will most likely hire an independent contractor. Partnering with an experienced company can help you navigate complex classification processes and procedures. MBO Partners has extensive experience in helping companies hire independent talent in a compliant manner. Contact us today to learn more.

That`s what California regulators asked Uber for in 2015 when the ride-sharing giant was sued for “misclassifying” a driver as an independent contractor. Other considerations when identifying a person as an independent contractor may include: Ownership of contract work automatically belongs to the independent contractor if the work does not fall into one of the nine categories listed above and the contractor has not signed an agreement to the contrary. However, an employer may become an owner if the independent contractor agreement expressly gives the employer the rights to the work performed under or under the agreement. It is extremely important to read an independent contractor contract very carefully before signing it to ensure that you are not giving up your valuable intellectual property rights. While the self-employed come from virtually every sector of the economy and work in virtually every sector of the economy, most show a high degree of specialization in their industry. In fact, the majority of freelancers report that they receive work orders because they offer a special skill that requires certification, special training or training. If an employee is an independent contractor, the tenant is not required to make any of these payments. Some States have defined these terms and addressed the problematic overlapping definitions by providing guidance with a classification test. [iv] In New Mexico, for example, a person is classified as an independent contractor if he or she meets all of the following standards: Although the independent contractor is his or her own boss, the work remains within the definitions of the oral or written contract and meets certain requirements. Again, the nature of the work will help define the relationship.

If the work is considered an integral part of the business, the person is more likely to be an employee. On the other hand, temporary and non-full work may involve the status of independent contractor. Misclassification also results in legal penalties for employers under federal and state law. First, if an employer has mistakenly classified a person as an independent contractor instead of an employee, the employer may be required to reimburse the employee for wages that should have been paid under the Fair Labour Standards Act, including overtime and minimum wage. Second, an employer must reimburse taxes and penalties for withholding federal and state income taxes that should have been paid to the government. Third, an employer may be required to make social security and health insurance payments that should have been made. Fourth, the employer must provide benefits such as health insurance and pension benefits to the misclassified person. [xv] Finally, many states now impose criminal sanctions such as imprisonment and fines on a company that intentionally classifies a person as an independent contractor. [xvi] If you have a reasonable basis for not treating an employee as an employee, you may be exempt from the obligation to pay labour taxes for that employee.

To obtain this relief, you must file all required federal information returns on a basis consistent with your salary of the employee. .