What Are Independent Contractors?

About 430 HR senior professionals took part in the 2011 online survey by the Right Management to determine the use of independent contractors by employers. According to the report from Right Management, a lot of independent contractors have become full-time employees however some still continue to embrace their independence and enjoy the benefits they get from their own contractor insurance. While it is a fact that a lot of independence contractors are enjoying their independence and general contractor insurance benefits, there is still the big question of whether to classify yourself as a contractor or employee.

Because of the increase in the number of independent contractors used by many employers, the government and IRS have shown interest in this area. Currently, the IRS focuses on the proper classification of the workers. A large number of individuals thinks they are independent contractors when in reality they are actually classified as employees.

There are times when contractors unintentionally classify themselves as independent contractors and there are companies that do not realize the true meaning of using independent contractors.

The IRS however came up with the classification system to clearly determine both parties.

According to IRS, worker classification can be determined by three main regulations known as the “Common Law Rules”. These rules consider the independence of the employees and the employer control.

1. Behavioral: This regulation attempts to address the freedom of action that is considered by the IRS. Do companies hiring independent contractors have control on all the details of the work provided? Most of the independent contractors are provided a particular work or task to complete within a specified time frame but are not given any guidelines to follow. They complete the job using their own guidelines or tools.

2. Financial: This factor seeks to answer on whether the company or business has control over the “business aspects” of the worker such as the payment provided, expense reimbursements made, or the suppliers involved. If a worker is given a task and is required to log in at a specified time using a computer with the shared intranet, then the worker is more likely considered as an employee since guidelines such as the specified time for logging in and tools such as the computer have been provided.

3. Relationship Type: This factor seeks to know if contracts are signed and whether employers pay benefits normally given to regular employees including pension plans, insurance, paid leave days, and others.

For individuals working as independent contractors but are still unsure regarding their status or their classification as workers, the IRS uses criteria that can help in determining the classification status. If one of the following criteria is met, an individual can be considered as self-employed:

– a member of partnership that runs a trade or business

– owns a business/company or performs a trade and a single proprietor or an independent contractor.

– in business and not employed by an employer/client for indefinite time.

If still unsure with the status, the individual must figure it out because there will come a time when an employer might question the classification, so it is better to know beforehand. However, whether a regular employee or independent contractor, the individual will still be able to enjoy a number of benefits such the company insurance benefits for regular employees and contractor insurance or general contractor insurance benefits for independent contractors.

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