Here is what you need to do and be aware of so you are fully compliant with federal and state regulations.
- Ensure your business name is registered with the state, or you are registered as an LLC
- Make sure you sign an independent contractor agreement with every company you work for. You an either have your own for them to sign or they will provide one for you. Make sure you clearly define your role, responsibilities, and pay.
- You may be required to have an Independent Contractor Exemption Certificate from your state. This means that you register as an independent contractor with your state. You give this form to the company/companies you work for so they are exempt from paying workers compensation/unemployment/and taxes for you.
- Give the people you work for a W9 at the end of the year and send them the total amount of your invoiced services for their records, and ask them to complete a 1099-Form for you.
Many people ask about the difference between employees vs. independent contractors. The difference is VERY IMPORTANT so that the company/companies you work for do not get in big doo-doo with the IRS. Its also incredibly important for you to understand so that you are aware what is needed on your end to comply with tax laws.
The big two things you want to ensure is that (1) you are determining your own hours and whomever you work for merely delegates projects or tasks, (2) you are using all of your own equipment, and (3) you are invoicing each company for the work you perform.
If you use the company’s equipment, work in their company office/home office, are supposed to be in the office from a certain time to a certain time, and are clocking hours using some sort of system that the company provided without sending them an actual invoice, you are likely considered to be an employee. This means that your company should be hiring you on as a W2 employee and take taxes out of your paycheck.
To sum it all up, here are the benefits and downsides to being an independent contractor!
- You can make your own schedule (and work in your pajamas in bed if you’d like)
- You may have able to receive self-employment tax advantages
- You can work remotely from anywhere in the world
- You control what companies you want to work on
- You have the ability to say no to a certain project if you don’t want to do it
- You essentially are your own boss
- You can work for multiple companies at the same time and make more money
- You can maintain a better work/life balance
- You can maintain your own intellectual property
- And you can test drive working for a company before you
- You have to pay your own taxes. I suggest you save around 25%-30% of each paycheck in a separate bank account that will be utilized only for tax liability.
- You likely won’t receive any benefits
- You will have to pay your own office expenses, commuting expenses, parking expenses, etc.
I hope you found this article helpful. Please feel free to reach out to our Support Team, if you have any further questions related to this line of work.
Also, if you are in need of a good Independent Contractor Agreement to use for your business, check out THIS TEMPLATE CONTRACT.
And, if you’re an employer hiring on an independent contractor check out THIS TEMPLATE CONTRACT.
Sources relied on for this article: