Red Flags Every Independent Contractor Should be Aware of

Contractor Red Flags

Working as an independent contractor has always been attractive alternative to working for a larger company, especially when the independent contractor possesses a certain skill or experience in a specific area. Just as the name suggests, a person is able to work independently from others without having to rely on them for success.

However, along with the many advantages of working as an independent contractor, you will still have your fair share of challenges and difficulties. In an effort to help you avoid unnecessary trouble as an independent contractor, here we list some red flags or pitfalls to be on the lookout for.

Clients Who Do Not Pay

One of the biggest differences between working as an independent contractor and for a company is how you get paid. Unlike a company, you will not necessarily receive a paycheck every couple of weeks. It’s up to you to bill your clients and then follow up with them to receive payment. Before you take on a new client, do your best to learn about how they will pay you. Avoid clients that are hesitant or unclear on how they pay. Clients who are slow to pay or need several reminders can become a source of stress.

Related: 3 Ways Contractors Can Make Sure They Receive Payment

Clients Who Refuse to Sign Contracts

Having a signed contract between you and your client that outlines the work to be completed and payment for services rendered is a basic and important part of business as an independent contractor. Be weary of clients who insist on moving forward with work without a contract in place. Without a contract, you will have little or nothing to fall back on should the business agreement go sour.

Clients Who Do Not Ask for Tax Forms

In order for your client to maintain proper records for their own taxes, they will want to have a tax form on file for each independent contractor they pay. This is typically a W-9. Watch out for clients that do not ask for a W-9 but continue to pay you. It may seem like a benefit to you when taxes and payment goes unrecorded, but an IRS audit or other investigation can quickly bring these situations to light and create problems.

Are You a Contractor or Employee?

It’s typically simple to distinguish between an employee and an independent contractor. There are occasionally some grey areas that can come up. For example, did they hire you to complete a task for an employer or client that requires extensive training? If you’re working in their office or regular use of their equipment, they should have hired you as an employee and not a contractor. There are some specific tax implications where this distinction makes a difference. Be sure you are paying attention to these details.

Want More Independent Contractor Red Flags?

D you have questions about conducting business as an independent contractor? Be sure to give Hacker Accounting a call at 602-375-5251. We’ve been working with independent contractors for years and are always happy to share best practices with you.

Chris Hacker
Chris has been working in the bookkeeping and accounting field for over 15 years preparing business, income and payroll taxes. Chris has a bachelor’s degree from Arizona State and is an Enrolled Agent with the Internal Revenue Service.