Working as an independent contractor has become a popular trend as employers are constantly in search of methods to cut down on expenses and taxes. Independent contractors enjoy a certain amount of freedom and control over the work they do and who they involve with. However, there are some things that independent contractors should be careful of before diving into an agreement.
Below is a list of what every independent contractor should consider before signing an agreement:
One of the easiest things to overlook when entering into a relationship with a contractor is the tax situation. As an employee, your employer pays half of your Social Security and Medicare taxes. However, as an independent contractor, you’ll be responsible for both halves. You should be careful to know and understand the arrangement of your agreement with the contractor. That way you can clearly define whether you are a contractor or an employee.
2. Intellectual Property
It is usually best to work as an independent contractor if you are creating something, such as art, written work, computer programs or any other creative works. As an independent contractor, you generally own the copyright to works you’ve created. Carefully study any agreement you sign when working with a contractor to ensure you retain these rights. If the contract you sign indicates that the work you create belongs to the company or to the employer, you are giving up one of the biggest advantages of working as an independent contractor.
3. Financial Control – Equipment and Supplies
As an employee, they typically reimburse you for expenses when buying equipment or supplies. Independent contractors are responsible for their own expenses. Pay attention to whether the employer tells you which type of equipment to use or where to buy it. If they are providing supplies and equipment or advising you on what and where to buy, you may considered an employee instead of an independent contractor.
4. Time Control
A major difference between an employee and an independent contractor is the ability to choose who to work for and how much time to allocate to a specific project. While independent contractors are free to work for other companies and clients, employees are typically required to work for a single employer. Independent contractors do not get paid sick days and vacation time as employees do. They are also responsible for their own insurance.
It’s important to look for these details when you enter into a contract with any potential employer to ensure you are an independent contractor. The way they word the contract is can make a big difference in how you they pay you and what type of taxes you are responsible for.
Have More Independent Contractor Questions?
For help with taxes as an independent contractor, be sure to give Hacker Accounting a call at 602-375-5251.