Factors That Define Independent Contractors

Factors That Define Independent Contractors

At Equinox Business Solutions, we’re here to provide complete, high-quality service to all independent contractors. Whether you’re a truck driver or some other kind of independent contractor, we can provide bookkeeping, tax preparation and accounting services.

Are you unsure whether your occupation is defined as an independent contractor or a standard employee? You’re not alone – it can be a complex area, and there are three main factors that go into defining an independent contractor.

Common Law Principles

The IRS and many states have adopted common law principles to define independent contractors. These rules focus on the level of control an employer has over a service or product – does the employer actually define what is being done and how it will be accomplished? That’s the basic crux of the question.

In addition, common law principles define this status by method of compensation. A person on a payroll and receiving a regular paycheck is typically an employer, while independent contractors receive payment in other ways. Other factors might include:

  • Whether the worker provides their own materials
  • Whether the worker can choose their work hours without risk of losing employment
  • Whether the work is considered temporary or permanent

Fair Labor Standards Act

The Fair Labor Standards Act is an act that establishes minimum wage, overtime pay, recordkeeping and youth employment standards in the private sector and within government. In certain cases, it will be used to determine employment status for independent contractors.

Court Decisions

In some cases, parts of the Fair Labor Standards act will need to be interpreted by a court. In this case, they’ve developed what’s called the “economic realities test,” which looks at the dependence of the worker on the business for which he or she works. If a person draws a large portion of their salary from that business, they are likely an employee. The test also factors things like skill level, nature of the work, intent of the parties and payment of taxes or benefits. Courts may also ask questions outside the Fair Labor Standards Act, including control over work, party’s level of loss in the relationship, skills required, equipment questions and others.

Want to learn more about what defines an independent contractor, or interested in any of our bookkeeping or tax preparation services for independent contractors? Speak to the professionals at Equinox Business Solutions today.

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