In the U.S., Independent Contractors are often called:
- Self-employed person
- Sole proprietors
- Single-member LLCs
- 1099 employees
The IRS has clear definitions on what constitutes an independent contractor. The general rule is that a worker is an independent contractor if the payer controls the result of the work but not how the work will be done. Misclassifying a worker as an employee or independent contractor has liabilities to a company, which include the potential loss of eligibility for unemployment protection and malpractice insurance protection.
Independent Contractor Designations:
- Provide independent, specialized, or requested services on a project or as-needed basis
- Pay their own Social Security and Medicare taxes
- Not eligible for unemployment insurance or workers' compensation
- Not eligible for statutory employment benefits
- Generally not covered by labor and employment laws
- The employer does not withhold or report taxes on an independent contractor’s services
Once you have established your employment needs, ensure you have determined what structure is best for your business for tax purposes, hiring needs, and future growth. There are several business structures with varying benefits; see the two most common Sole Proprietorship and Single-Member LLC to determine which is best for you and how to register.