An independent contractor is a person, business, or corporation that provides goods and services to an employer under a written contract. Unlike an employee, an independent contractor works as required by the employer and is not entitled to any benefits like pension or paid leave.
When a company hires an independent contractor, they should fill out and submit a W-9 form to the IRS before work is done. This will ensure the IRS receives correct information and avoid any questions in the future.
Taxes
If you’re an independent contractor, you need to keep good records of your work. These records will help you track income and expenses for your taxes.
Your income, whether it’s cash, property, goods or virtual currency, will need to be reported to the IRS. You may receive documents supporting this income, such as check copies or receipts, so be sure to keep them with your tax records.
In most cases, you’ll need to report your earnings on a 1099-K or 1099-NEC form at the end of the year. This document is used to report income from your freelance work or other business ventures, like royalties, rent, jury duty pay (yuck!) and medical and health care payments.
Depending on your business model, you might need to submit other tax forms for independent contractors. Some of these include a W-9, which is a simple tax form that businesses request from independent contractors to ensure they’re receiving proper compensation.
Insurance
Insurance is an important aspect of your business, and it’s crucial to get the right type of coverage. Whether you’re an independent contractor or not, you should have the correct insurance policies in place to help protect your business from liability claims.
Independent contractors often need general liability insurance to help cover them if a client or customer sues them for property damage, bodily injury or even reputation loss. Additionally, they may need professional liability insurance, also known as errors and omissions insurance (E&O), which helps pay the cost of lawsuits that result from a mistake by a contractor.
Depending on your work, you may need other types of coverage, including commercial auto insurance, disability insurance and even performance bonds. A business owners policy (BOP) is a great option for many small businesses, as it usually includes all of these insurance policies in one policy. It also may be less expensive than buying these policies separately.
Licensing
Depending on where you live and what kind of work you do, business licensing is an important part of your job. It will determine whether you have to obtain permits, pay city taxes, and follow zoning rules.
In some states (such as Alaska and Washington), every company must have a business license. Others require that only certain types of work need one.
A business license also protects you from fines or fees that might be levied against you if you are found working without one. If you are an independent contractor, this could be an especially serious issue, because you might not have a way to protect your business against lawsuits from customers whose work you have done without a license.
You should consult with your local Chamber of Commerce to learn about your state’s requirements and how to get a business license. In some areas, this can be as simple as a phone call to the local government office that deals with business permit issues.
Payment
Payment is the voluntary tender of money or other things of value by one person to another in exchange for goods and services provided. This can include cash, checks, wire transfers, credit cards or cryptocurrencies.
Independent contractors are self-employed workers who provide services on an as-needed basis, often with their own tools and schedules. Unlike employees, they have greater control over their work and are not required to provide benefits such as health insurance coverage or paid sick days.
Typically, companies pay independent contractors by the hour or by a project rate. If your contractor is billing per hour, make sure they are accurately reporting how many hours they worked on a task.
If you are a company that is hiring and paying a global team of independent contractors, you should be aware of taxes and laws in the countries where they work. A global payroll strategy is necessary to pay contractors quickly and in full compliance with labor laws, and a quality contractor payment tool can help you do so.
