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Independent contractors are individuals who run their own businesses and often hire out their services to other organizations or businesses (IRS, 2010). The independent contractor differs from a permanent employee in many ways. The independent contractor can choose to provide services to different kind of hirers or simply work for a single employer. Independent contractors have more control over their schedule, work duration and their performance as compared to employees (Fishman, 2008). It is also argued that independent contractors get more pay than other employees. This is because the employs are more willing to pay more because they do not have long standing agreements (Fishman, 2008). On the other hand employers who have hired independent contractors are not charged payroll taxes. The employers do not have to comply on working hours because the independent contractor has direct control over his working hours (Jones, 2004).
Employers must always determine whether a worker is an independent contractor or not (IRS, 2010). Some employers may classify an employee as an independent contractor so as to avoid remitting payment taxes (Fishman, 2008). Employees must therefore determine whether they have hired a person as an independent contractor or as an employee. If independent contractors subcontract work to other individuals then they must determine whether those individuals are employees or independent contractors (IRS, 2010). Any employer who has enough reason not to treat a worker as an independent contractor should apply for a relief from payment taxes. Misclassification of employees could result to payment of taxes for that worker as well as hefty fines (Jones, 2004).
The IRS advises that employers must evaluate behavior, financial control and type of relationship with the worker in order to establish if he is an independent contractor or an employee (IRS, 2010).
The Independent contractor does work according to the Job requirements. Employees on the other hand have to work for an indefinite period even where the work performed is irregular.
The employer has control over the behavior of the employee. The employer may require the employee to work full time. However the independent contractor could work for many employers at different times and even on different days therefore the employer has no control over his behavior (Jones, 200)
The independent contractor has more financial control over his expenses as compared to the employee. The independent contractor does not receive regular wages after a specified period of time (Fishman, 2008). However workers in professions such as law may be paid hourly. Independent employees also have the ability to make profits or losses (IRS,2010).
Although a written contract may indicate that an employee is an independent worker, this is not sufficient enough (IRS, 2010). How the parties work together determines if one is an independent contractor. Employers do not provide independent contractors benefits such as pensions, sick days, disability insurance and paid vacation (IRS, 2010). However lack of provisions of these benefits does not mean that the worker is an independent contractor.
If a worker provides services that are core to the business such as being the company's attorney it may be difficult to classify a worker as an independent contractor (IRS, 2010). It is difficult for a company to hire out core work to independent contractors because they would like to have direct control over these activities (Jones, 2004).