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. However, I'm now hearing from alternate sources that an individual can be an independent contractor. So who's right?

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?

Is there any place on the web where I can find an example of a contract for an individual independent contractor?

And most importantly: Will I be responsible for taxes, insurances or expenses if I have independent contractors; what would they be? FYI, I'm in TX.

Answer 1

It is called contract labor. The contract spells out the work to be done. However, the contractor governs when and how and in most cases provides his/her own materials to do the job. All you as a company provide is the work needed, the deadline for completion, etc.. You as the company must provide a 1099 at the end of the year for filing your taxes with a copy to the contractor. The contract must also state that the contractor is responsible for all taxes due on the payment. Under the contract labor contract you are not responsible as a company to provide any benefits.

Take a look at these:
http://www.conniemoorecattrmt.com/Library/Contract%20Labor%20Agreement.pdf
http://www.workforceatm.org/articles/template.cfm?results_art_filename=tx_laborlaws.htm

Answer 2

I am not sure who told you that a person can not be an independent contractor but they have no idea what they are talking about.

Any person can be an indpendent contractor ( when they do so they of course are now in business for thierself and are in fact thier own company) but you sit on your couch and say, Now I am a company, that is it, nothing else to do. Once you becomae a contractor you are a company, no forms, no licenses unless your speicfic industry requires it.

I have been an independent contractor for years, and people who sell for places like AVON and AMWAY are all indpendent contractors, it is no big secret club or hard to do.

And that is what an indpendent contractor is, a person who has a contract ( normally written but can be verbal) as to an agreement to do work for them for a specific amount of money.

The company hiring the contractor may require them to furnish various insurnace, including liablity or workers comp if they as the contractor also have employees.

And Contractors have to pay all of thier own taxes, including the self employment tax of 15 percent of their income ( this is the replacement of the sociial security tax you pay as an employee at 7.5 percent.

They will not and legally can not offer you any insurnace at all

You are trying to make this so much harder than it really is and have been told very wrong info by the SBA

Answer 3

I cannot answer you for the state of Tx, but I was an auditor for the state of Il and can talk about federal law which most states follow. Technically, to be considered an independent contractor for whom the company does not have to withhold taxes, a person must be operating independently. If they do the same thing they do for you with other people or companies, ie appear to be in business doing whatever service, this helps show that they are independent. If they do the work on their own timetable rather than your schedule, this also indicates independence. Another clue is if they use their own tools, material etc to do the job, or if you provide needed tools/equipment. Many companies now are treating people as independent contractors who should be considered employees. This is a ripoff, used to dodge tax law and not give employees benefits to which they are entitled. You can get away with this usually, and almost always for a period of time, but it winds up costing you if you should get audited. They then can charge you all of the taxes you should have withheld, ie instead of withholding them from the persons earnings you wind up paying them out of pocket, plus they add penalties and interest to the amount you owe. If you control the persons actions, ie time and place they do their work etc., and if the person only works for you, no one else, they are an employee and should be treated as such.

Answer 4

Individual people CAN operate as Independent Contractors without forming an individual company, by Texas Law, as per Texas Government Code, Subtitle F, Chapter 2251: http://www.tbpc.state.tx.us/stpurch/cmg/Appendix_9_Contract_Terms.html
"The contracting entity may be a corporation, non-profit corporation, limited liability partnership or professional corporation, partnership or sole proprietorship, or it may be an individual."

I live in Dallas Texas and as a Draftsman I once had a job where I was an individual contractor. It was my job to pay for my self-employment taxes, my withholding for my income taxes, insurance or any other expenses. This was standard for all the company's employees.

When I was working for Mobil a woman was hired as an Independent Contractor to come in and help organize the company.

YES, you can hire Independent Contractors, and yes they can be individuals. In the examples I gave above I was never a company, but the consultant hired by Mobil was.

The IRS tax laws on Individual Contractors: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
This page will give you the tax law and the legal definition of an independent contractor that you need.
If your Independent Contractor meets ALL the tests for the legal definition then they can be called independent.

About.com: http://jobsearchtech.about.com/od/laborlaws/l/aa121800.htm
Has a 4 page article that can provide you with more information.

If you download this PDF: www.edd.ca.gov/taxrep/ee-ic.pdf
Then it should give you the common law for each state.

Weblocater: http://www.weblocator.com/attorney/tx/law/b22.html
Discusses the Independent Contractor in Texas. (Check the 3rd line from the top)

This site provides free legal advice on Texas Independent Contractor Law: http://lawcrawler.findlaw.com/scripts/lc.pl?entry=%22Independent+Contractor%22&sites=findlaw.com

Answer 5

Independent contractor provides laborers to a company wherein the latter cannot be forced to give retirement and other benefits to the laborers. The laborers do not have employer-employee relations with the company but with the contractor.

Answer 6

Start at your city or county offices. Anyone can be a contractor that takes the test and passes. My husband wanted me to be a general contractor but I said I didn't want to do it. Too much math and figureing gables and stuff. Anyway, I hope this helps. I am not a company but a spouse of a plasterer who had to retire because of disabilities.

Answer 7

You would have to pay both the employer's share and the employee's share of social security and medicare-- 7.65% each or a total of 15.3% plus the income tax on the $10000 income reduced by the employer half of the ss tax. The income tax would vary based on your total income from all sources and your filing status. Most would probably be covered by your exemptions and standard deduction, so the income tax might be zero.