Independent Contractor Status; Hearing before the Committee on Small Business House of Representatives One Hundred Fourth Congress First Session Washington, DC, , January 19, 1995

24 cm, 148 pages. Wraps. Illustrations. Serial No. 104-1. An independent contractor is a person, business, or corporation that provides goods or services under a written contract or a verbal agreement. Unlike employees, independent contractors do not work regularly for an employer but work as required, when they may be subject to law of agency. Independent contractors are usually paid on a freelance basis. Contractors often work through a limited company or franchise, which they themselves own, or may work through an umbrella company. In the United States, any company or organization engaged in a trade or business that pays more than $600 to an independent contractor in one year is required to report this to the Internal Revenue Service (IRS) as well as to the contractor, using Form 1099-NEC. This form includes the money paid, contractor's name, social security number, address, phone number, and an indicator about the existence of foreign bank accounts; independent contractors do not have income taxes withheld like employees. The distinction between independent contractor and employee is an important one in the United States, as the costs for business owners to maintain employees are significantly higher than the costs associated with hiring independent contractors, due to federal and state requirements for employers to pay FICA (Social Security and Medicare taxes) and unemployment taxes on received income for employees. Likewise, employees are protected from being fired without cause, and if fired or let go for other reasons are entitled to unemployment benefits, whereas independent contractors have neither protection nor entitlement. Employees are also entitled to receive overtime pay for work performed over the 40-hour-per-week standard, whereas independent contractors may work any number of hours (including far above this standard) with no change in pay. The United States Supreme Court has offered the following guidelines to distinguish employees from independent contractors: The extent to which services are integral to the employer's business. Greater integration favors an employee-employer relationship. The permanence of the relationship. More established relationships favor employee status. The amount of investment in equipment. When a worker makes a significant investment in the equipment they use in working for someone else, this suggests an independent contractor relationship. The degree of control by the principal. More control favors employee-employer status. The amount of financial risk. More opportunity for profit or loss favors an independent contractor relationship. The amount of initiative, judgment or foresight in open-market competition with others required for the success of the claimed independent enterprise. Entrepreneurial and distinctive work favors an independent contractor relationship.…