An independent contractor is a self-employed individual who works on projects or assignments without the direction and control of the client. Requesting the services of an independent contractor can relieve a client from providing the responsibilities and benefits that may be required in an employee/employer relationship. While the client is relieved of employer responsibilities, the independent contractor must take on many of those employer roles and responsibilities to ensure legal and ethical obligations are fulfilled.
Independent contractors must take on the role and responsibilities of a bookkeeper/accountant. Clients do not typically withhold federal, state, Social Security and Medicare taxes on payments. The independent contractor is responsible for filing and paying taxes on income earned from a client. Clients should provide the independent contractor with a W-9 tax form before issuing payments. By January of the following year, the client provides the independent contractor with a Form 1099-MISC with the amount of payments made the previous year. The independent contractor must obtain all Form 1099s from income earned during the year and file with the Internal Revenue Service and the state revenue office, if the state collects state income tax. and claim any entitled deductions for expenses such as equipment, advertising, office supplies, and mileage.
Obtaining Insurance and Benefits
As an independent contractor, clients do not typically provide workers' compensation or health insurance. Depending on individual state laws, independent contractors may be covered under workers' compensation. Check with your state attorney general's office to determine whether your particular situation as an independent contractor is defined as working under the direction and control of the client and thus, qualifies for workers' compensation insurance benefits. In many states, the independent contractor who is injured on the job may be without workers' compensation insurance protection and should look into purchasing insurance before starting any projects or assignments.
Billing and Collections
While employees can typically expect to be paid on a consistent basis, many independent contractors bill their clients for work performed. As an independent contractor, you may have to take on the role of accounts receivable and collect on unpaid invoices owed by clients. Calling your client's accounts payable department may be a necessary part of your job as an independent contractor. If your client is not paying according to the terms of the invoice, you may have to send reminders and submit past due statements. Depending on the client's ability to pay in a timely fashion, it could put a strain on the working relationship. As an independent contractor, this is a necessary role and responsibility to stay in business and improve your financial status.