For many people, it is a lifelong dream to tender their notice to the boss and work for themselves. What could be better than being answerable only to you, setting your own hours, foregoing a horrendous twice-daily commute and best of all, not having to endure the endless germs that circulate around the office come Winter time? Sure you might miss the lunches with your co-workers, but you’ll get over it.
If you’re thinking of bringing your dream to fruition, it’s a big leap from receiving a weekly or twice-monthly paycheck and the accompanying benefits that a “regular job” entails versus owning your own business or becoming an independent contractor.
Though you might appreciate the convenience of working for yourself as an independent contractor, you must be mindful that you will lose some of the protections that you garner by working for a company on site. Even if you are an independent contractor working for a company, as opposed to freelance independent contractor work, you are often not considered to be a regular (translation here is “on-site”) employee, and you do lose the federal law protections like discrimination. It should be noted, however, that some states have discrimination laws that define “employee” more broadly than the Internal Revenue Service and/or the Department of Labor. You could investigate further by checking your state and local discrimination laws to see if you would be covered in your independent contractor position, or, in the alternative, consult with an attorney who can help you determine how you might be protected.
There are, however, even more protections and advantages that will not be available to you as an independent contractor, since you are not considered, nor treated as, as a “regular employee”, among them:
* It is worth noting that workers at a company that are treated as independent contractors, may able to receive unemployment benefits, by an IRS determination in most states by filing an SS-8 form with the IRS.
Well, hopefully glancing at the above list does not deter you from becoming an independent contractor, because… more importantly, there are additional perks which you, the employee, have always just kind of taken for granted, and, as an independent contractor for a company or yourself, you’ll lose health insurance, pension, vacation and holiday pay and paid time off for personal days.
Gulp – well, maybe right about now, you are thinking that you would like to remain under the big umbrella of the traditional workplace just a wee bit longer?
There are other plusses to being an independent contractor besides just working in your sweats or jammies from the comfort of your own home. There are bound to be many legal questions and you might want to avoid all the headaches and hassles of launching out on your own by seeking a consult with an attorney. A top lawyer will be able to answer all of your common legal questions.
Now, onto the bright side… there are a handful of laws that will protect you in your new status as an independent contractor, among them:
Payment of estimated taxes – you now must bear the responsibility of paying estimated taxes. This actually behooves you because if multiple employers withhold money from you, you would be bringing home a paltry paycheck. Instead, by estimating the tax payments, you are responsible for filing your tax returns and paying any tax liabilities on your own. If you don’t owe more than $1,000.00 for the tax year, you may even be exempt from this requirement, after you take your deductions and credits. Thus, estimated tax payments based on federal tax laws geared to protect individual contractors are one way to protect your financial interests.
Tax laws for business deductions – as an independent contractor, tax laws permit you to take business deductions. For example, you can’t take advantage of business deductions if you work as a telecommuter. You might want to consult with a CPA when you first become an independent contractor as it is important to know which deductions you can take, so that you won’t have to pay as much in taxes, and, also so you don’t make the mistake of taking deductions that you are not entitled to, which ultimately could lead to an audit by the IRS.
Ensure you will be paid for your work by signing a pre-job agreement – The savvy independent contractor signs an agreement for their work before the job even begins. By doing so, it protects your status as a non-employee, but it also serves to ensure that you will be paid. Of course, even with a contract, an employer can decide not to pay you, but with a signed contract in your hand, a judge will grant the authority to make that errant employer pay you. You should consult with an attorney to have a contract drafted and tailored specifically to your needs. You’ll simply adapt the contract to each job or employer, and voila – your interests are protected. Do be mindful that judges also have the authority to void contracts that are pertinent to the job which is the subject of the controversy. If you are an independent contractor with a company and they offer you a contract for short-term or long-term work, be sure you understand all ramifications of the document, or, in the alternative have your attorney review it carefully before you choose to sign off.
Right to ownership of work going forward – for the creative set, whether you create a concept, or generate a product, you are considered the copyright owner. Likewise, if your independent contractor work involves writing or artwork – this is your own work, unless you waive that right via a contract. Unlike being an employee, where everything you do belongs to your employer from the get-go, in an independent contractor situation, you might wish to license your creative work when working as a contractor by asking for additional pay.
Mom and Dad always told you to read the fine print before signing on the line, and being an independent contractor requires you to be savvy about what you can and cannot do – your best bet is to consult with a CPA or attorney before embarking on this new venture.