Most of us have repeatedly asked ourselves whether it is hard to be an independent contractor. It is possible that, as an ordinary employee, you wanted some independence. Or the firm offered you a remote job, so you thought about changing an old status. Before deciding on radical modifies, it is necessary to figure out the future profession in detail.
Benefits of Being an Independent Contractor
The mentioned category, as a rule, means an individual involved in business activities to provide certain services. Such people include consultants, brokers or simply creative persons. Such a position has a number of advantages:
- Independence. Of course, this is an obvious plus, because you do not have to report to another boss. You can create your own work schedule or modify it depending on the plans and tasks. If you are assigned an hourly payment, it needs to agree in advance on the salary and timing of payoffs.
- An absence of taxes. A lot of similar collaborators believe that charges are not withheld from refunds received. But we advise you to closely monitor your personal tax return in order to avoid lawsuits and fines.
- The signing of the contract. It's no secret that most workers do not have a written treaty. Exceptions are trade union agreements and highly paid executives. In this context, an independent contractor wins, since he/she always has a covenant. Oral deals frequently change and do not guarantee the protection of interests. The written one clearly specifies the duration, purpose, and consequences of cooperation. The existence of such an agreement allows settling numerous contradictions by compromise.
- Subtraction of additional expenditures. All your costs in the process of management are considered as business expenses, including travel, mobile communication, and other items. Naturally, you are required to provide an income declaration for minimizing spending.
Employee vs Independent Contractor
Laborers, along with individual entrepreneurs, contribute to the pension accounts. Like businessmen, coworkers have the right to participate in making important strategic solutions, to offer innovations and to supervise the process, with the consent of their superiors. Of course, an independent contractor can draw up his/her own plan of financial savings, which he/she most admires.
Relations with collaborators are based on a written agreement, which clearly identifies all working moments. Performing assignments for persons or companies, such as people, however, are not included in the staff. This explains the high level of freedom and mobility regarding the conclusion of contracts with several firms. Ordinary laborers cannot afford such liberties. But here there is one nuance. If the office workers are protected by employment laws, independent contractors are deprived of such benefits.
Independent contractors have the right to decide who to deal with and how to complete the project. Customers do not have the right to direct your actions. They only name the desired result. You determine the way to achieve it. Do not think that you are free in all aspects. Contractors must adhere to established deadlines and standards, not forgetting to pay taxes on a quarterly basis.
Trying to draw a parallel between an employee and an independent contractor, some agencies introduced a so-called test of economic realities. In the event that most of the person's salary consists of daily activities, most likely we are dealing with a wage-earner. If the work and income are temporary, you have contacted the freelancer. This test takes into account the level of professionalism, partner intentions, and taxation. Besides it, the courts ask the next queries regarding labor links:
- Who controls the workflow to what extent?
- Determine the level of costs for each side
- Who pays for the extra equipment?
- Is the collaborator a part of the commerce?
If the performer monitors the process, then the relationship between the chief and the coworker is treated as equal. If the bosses only voice the request for work, then they are hiring independent contractors.
Employer Tax Liability
Commitments depend on the status of the expert. If it is a question of the personnel, any director should pay the state and federal charges on unemployment, social insurance, and remuneration for compensation/disability of laborers to the State Insurance Fund. If a company encounters an independent person, the header is not required to make an employer's tax liability. Firms may use the contractor's autonomy to avoid trouble in the event of prior communication with similar laborers and conducting an IRS audit.
Drawbacks of Being an Independent Contractor
Experts argue that there is no single definition parameter. The worker’s employment status depends on the duration of cooperation, the amount of investment, control degree, the percentage of profit, the level of initiative and predictability of potential risks. The existence of a license and a treaty does not apply to mandatory elements. Adepts say the following cons:
- Lack of guaranteed profit. Self-sufficiency is not always associated with a regular salary. You can simultaneously work for several clients, providing yourself a steady income. But buyers and money may end any minute. I.e. you must have a spare option.
- Remuneration of extra costs. If you get an office, you will be provided with a computer, supplies, etc. Of course, you are able to reimburse such expenses but to begin with, spend your own savings. Please note that some purchases have limited capabilities. So, currency resources connected with a food and entertainments are compensated at a rate of 50% from the spent sum.
- The schedule of wage reception. One of the main reasons why people prefer to remain as constant workers is the health care paid by the authorities. If you work independently, you will have to buy medical insurance for your money.
- Taxes. Even being a freelancer, you need to declare income from activities. In addition to the federal and state sectors, you should also consider social safety and medicine.
Thus, numerous components affect the status of an independent contractor. Its dominant characteristics are a written agreement with the specified norms and tariffs, as well as latitude in determining methods of solving the problem. However, except obvious pros, do not forget about the unstable revenue and the lack of protective measures.