Independent Contractor

A self-employed individual who provides services to clients under a contract — distinct from an employee, with different tax treatment and fewer legal protections.

An independent contractor is a person who works for clients on a contractual basis rather than as an employee. The distinction matters enormously: contractors receive 1099s instead of W-2s, pay their own self-employment taxes, receive no employer benefits, and generally have fewer legal protections than employees. In exchange, they typically have more autonomy over how, when, and where they work, and can work for multiple clients simultaneously.

The line between contractor and employee is legally significant and frequently contested. The IRS and Department of Labor use multi-factor tests to determine proper classification — no single factor is determinative, but key considerations include behavioral control (does the company control how work is done?), financial control (does the worker have a significant investment in tools/facilities, and can they profit or lose?), and the nature of the relationship (is there a written contract, are benefits provided, is the relationship permanent?). Misclassifying employees as contractors is one of the most common labor law violations — companies face back taxes, penalties, and potential class action suits.

Signs You May Be Misclassified

  • You work exclusively for one company and have for an extended period.
  • The company controls how and when you work, not just what you deliver.
  • You use company equipment, software, or facilities primarily.
  • Your work is core to the company's business — not a specialized outside service.
  • You're economically dependent on this one client for the majority of your income.
  • If you suspect misclassification, you can file Form SS-8 with the IRS for a determination.

Example

A company hires a web developer to build a new website over three months. He works from his own home, uses his own equipment, sets his own hours, invoices the company for completed milestones, and works for two other clients simultaneously. He's properly classified as an independent contractor. The company gives him a 1099 and he pays self-employment taxes on his earnings.