The HR Dictionary

Independent Contractor

A self-employed individual or organization that has a contract to work for or offer services to another organization as a non-employee is known as an independent contractor. Independent contractors consequently have to cover their own Social Security and Medicare taxes. Both sides sign a contract outlining the obligations, compensation, kind of work, volume of work, and other specifics for the contractor. The agreement focuses more on the job than the method by which the contractor completes it.

Unlike regular workers who have gone through an organization's hiring and onboarding process, independent contractors don't. Although the corporation pays its contractors, they are not considered to be workers. Independent contractors can function and serve multiple clients at once.

  • The IRS identifies independent contractors if the client doesn't necessarily care how the work is accomplished, merely the results of the body of work. An employee fills out the IRS W-4 tax form, whereas the independent contractor completes IRS Form W-9.
  • The department of labor identifies independent contractors by considering the nature of the activity and the level of control over it. It also considers the possibility of gain and loss for the employee, the permanence of the relationship, and other factors.

Independent Contractors vs Employees 

To put simply independent contractors are self-employed and must pay self-employment tax on the earnings from their job. They must submit invoices for payment and provide their own work equipment. Whereas employees carry out tasks that the employer directs, including what has to be done and how it should be done. This term also applies to exempt workers, who are free to carry out their duties as the employer deems fit as long as the results are satisfactory. 

Having a blended workforce with independent contractors might seem challenging for an organization with no HR software in place. However, current HRM systems provide the ability to easily manage different types of employees and independent contractors, their pay policies, and much more without any manual work. It takes away the hassle of managing a blended workforce from the HR team.