Contractors vs. Employees?

Question

It is my understanding, per my local SBA, that you cannot have an individual (i.e. a non-company individual) be an independent contractor. To the contrary, that an independent contractor must be a company. Can you confirm that this is true?

It seems that there has to be a legal way to create an agreement between a company (sole proprietorship) and an individual that treats that individual the same as a contractor - i.e. the company and the individual agree that the company is not held liable in any manner (unemployment, taxes, insurance, etc.) and that the individual assumes full liability. Does anyone know a simple way of doing this?

Answer 1

The government is really cracking down on this. You will likely be audited if you indicate that you use outside contractors instead of employees.

This is pretty simple. When you have contractors, you avoid paying Social Security, Unemployment, and Worker's Comp. The government is not going to let you do that. If you try, you will get in trouble. Save yourself a lot of headaches and forget the idea that you can save money with outside contractors instead of employees.

Answer 2

At the company where I work their is a mix of employees and independent contractors. The only liability the company has for the independent contractor is unemployment tax, no social security, medicare, or federal tax is withheld from their wages. When we have an independent contractor start they sign a contract, stating what their commissions are on their job, plus a few other things. Our company has been audited by the IRS just a few years ago and everything went smoothly.

Answer 3

According to the IRS, an Independent Contractor can be an individual, and be considered a non-employee if s/he is not under the direction or control of the employer (client) in terms of hours of work, means and methods, tools and equipment, offering his/her services to the general public, compensation, etc. (Google "Independent Contractor".)

When I get a project, I have a standard contract that details the client's expectations (the results), my requirements (access to client records/employees/other necessary data), a clause concerning taxes, worker compensation and the like (which I agree I am liable) and a non-disclosure clause (wherein the client agrees not to disclose my methods to others, and I agree not to disclose what I have learned about the client's business). In addition, I agree that I will not work for a competitor within 50 miles of the client's location for a year, unless the client releases me, in writing.

Answer 4

no don't trust the SBA ..verbal especially on state and federal labor law. and IRS regulations.
ask them to put it in writing.
contact those agencies fro the written requirements.
i understand IRS makes the conditions of the w-2 and 1099 very clear.
terms and conditions of employment are what matters.