Independent contractor

An independent contractor is a person who completes tasks for a business, but does not work for it as an employee. These people offer their services to multiple customers; examples are auditors, contractors, doctors, and lawyers. A person is more likely to be an independent contractor when the customer can only direct the specifications of the work to be performed, but cannot direct the daily activities of the individual.

The earnings of a person who is classified as an independent contractor are subject to the self-employment tax. The customer is not responsible for any payroll taxes for this individual. Because of this tax obligation, many companies include in their legal agreements with contractors a clause that the person agrees that he or she is an independent contractor.

Related Courses

Human Resources Guidebook 
Payroll Management