More people work from home or remotely as independent contractors than ever before. With the growing gig economy, companies may prefer hiring independent contractors over formal employees and they save lots of money by not paying state minimum wages. Companies don’t provide typical employee benefits to independent contractors like health insurance, paid vacations, maternity leave, and 401(k) contributions. To avoid any company taking these advantages too far and to prevent blurred lines between employee vs. contractor, review these starting guidelines to tell you everything you need to know about independent contractor rights.
Understanding your legal rights as an independent contractor or a business hiring an independent contractor will keep legally concerns in check.
What Rights Do Independent Contractors Have?
As a business hiring a contractor or an independent contractor yourself, it’s time to get familiar with the rights associated with your contracts. Getting paid and knowing your tax responsibilities allow independent contractors to earn greater profits. If you don’t know these rights, clients may pay you less (or not at all), make you work longer hours than you should, and require duties you never intended to do. Also, you may end up paying unnecessary taxes which reduce your profits.
Here are ten independent contractor rights:
- Right to a Contract
- Right to Control
- Right to Make Decisions
- Right to Work When You Want
- Right to Work Where You Want
- Right to Advertise
- Right to Receive Payment
- Right to Work with Other Contractors
- Right to Challenge Your Employment Status
- Right to Manage Your Own Business
The rights of independent contractors evolve from federal and state laws, rules, regulations, and court decisions. The purpose of this article is to teach you about understanding general independent contractor rights. Below, we expand on ten key rights that independent contractors have.
1. Right to a Contract
A business person without a legally binding contract with a client becomes exposed to abuse.
A formal independent contractor agreement protects you by spelling out your duties (within the parameters of projects) and how much and when you get paid. It also designates you as an independent contractor rather than an employee.
Make sure your contract establishes an independent contractor-client project-oriented relationship. Otherwise, state or federal government agencies might consider you as an employee.
Also, ensure your contract describes the duties you perform (such as copywriter or consultant, etc.), project description, the time for completion, billing terms, payment methods, and contract termination.
2. Right to Control
The essence of being in business for yourself puts you in control. Not your clients. If a client tries to control your business by telling you where, when, and how to work you become an employee. Never let that happen to you.
Exert your expertise as an independent contractor using your knowledge to perform duties. Thus, your clients don’t need to train you or provide guidance. You must complete your work as you see fit.
3. Right to Making Decisions
While employees expect to follow orders from their bosses, independent contractors become their own boss. Consider whoever hires you as your client and not your boss.
Being an independent contractor provides you with the freedom to dictate where, when, and how a project gets completed. Remember, your clients do not direct your work. If they do, you become an employee and not an independent contractor.
Clients hire you to complete a project while you maintain the freedom to decide how to conduct the project.
4. Right to Work When You Want
Employees show up for work on specific days and hours that the employer designates. They take a meal break at a set time and leave work at a certain hour.
Federal and state laws establish the normal workweek for employees (typically Monday through Friday) and legal holidays where no one works. The same goes for how many hours worked per day. Extra days and hours amount to overtime pay.
You, as an independent contractor, decide what days and hours you work. If you want to work on Saturdays, Sundays, and holidays, that’s your right.
5. Right to Work Where You Want
As your own boss, you choose where you work. You can work at home, at a coffee shop, on the beach, in a park, or maintain a private office anywhere you want. That’s why you should avoid working at the client’s place of business like an employee.
Understand that your clients’ employees won’t perform your unique services. That’s why they hired you.
Finding yourself working as part of an internal team of employees may misclassify you as an employee. Also, using your equipment and supplies and not your clients’ also distinguishes you from an employee.
6. Right to Advertise
You have the right to act and advertise for yourself. Market your private services by printing business cards, brochures, and handouts. Advertise in freelance job boards or online platforms for freelancers. Advertising in classified ads as a freelancer also helps.
Make sure when hired to work on a long-term contract it specifies your choice to work for other clients too. This way you do not appear as an employee for one employer.
Marketing yourself as an independent contractor goes a long way towards recognition as one.
7. Right to Receive Payment
Employees typically get paid on a set schedule like weekly or monthly. Normally they get paid by a check which includes deductions for the employee’s contributions to social security and Medicare.
Your independent contractor agreement specifies your right to receive payments and deadlines. That’s why it’s important to use a contract that clearly states how much, how, and when you get compensated.
Independent contractors normally submit an invoice specifying the work performed and how much compensation to receive. Your contract specifies how soon after submitting the invoice you get paid and in what manner (check, bank deposit, or online payment method like PayPal).
8. Right to Employing Other Contractors
Employees show up for work and follow the boss’ directions.
A contractor sometimes contracts with others to perform some of the duties. When a client hires you the option exists to hire other contractors to do some of the work. Like a general contractor paying subcontractors to do some of the work on a construction project.
Partnering with other independents to work on a project makes you appear as an independent contractor. Make sure your contract with clients includes the option to hire others to help you complete the project.
9. Right to Challenge Your Employment Status
Your independent contractor agreement specifies your role as an independent contractor. Yet, the IRS and the Labor Department (and state agencies) use their own factors to determine if you acted as an employee or an independent contractor. You have both the right to challenge your status and the right to an employment attorney. Factors that determine employees vs independent contractors include:
Job location: Employees work at the employer’s requested premises. Contractors work at home or their self-determined office location.
Clients: An employee has one employer. A contractor works for many clients.
Training: Employers train new employees. A contractor possesses the expertise to do the work.
Controlling work: Employees work under the direction of the employer. A contractor decides how to do the work and during what hours.
10. Right to Managing Your Own Business
Independent contractors run their own businesses. You manage all aspects of your business. As a self-employed business person, you maintain the responsibility to provide your own benefits.
Therefore, your client bears no responsibility for providing usual employee benefits like pension plans, health insurance, sick pay, paid vacations, or disability insurance. This saves your clients a lot of money.
You enforce your business rights. For instance, if the client fails to pay you for work performed you maintain the right to sue the client in a court of law for breach of contract.
Filing Your Taxes as an Independent Contractor
Independent contractors pay their own state and federal taxes. No paycheck deductions occur from the clients like an employee. Managing your own business means accountability for paying your own taxes.
Your tax responsibilities include the Self-Employment Tax. At the end of the tax year, you must file a Form 1099-MISC with the IRS reporting all payments made to you from clients.
The IRS explains the difference between an employee and an independent contractor here.
It boils down to how the IRS perceives the behavior and the relationship between the client and the contractor. If it looks like an employer-employee relationship, the IRS considers it so.
Once a self-employed independent contractor relationship becomes established, the contractor must file appropriate tax forms. The IRS explains these forms here.
Protecting Yourself as an Independent Contractor
Understanding independent contractor rights as explained here involves determining if you acted as an employee or as an independent contractor.
You’ll earn more money by knowing your rights about legal contracts with clients, payments, work decisions, and tax responsibilities.
As you read above, we provided some answers to these complex questions. However, when considering going into business for yourself also consider hiring an experienced business law firm to protect your rights.
Additional Independent Contractor Rights Resources:
The U.S. The Department of Labor helps companies and contractors avoid the misclassification of employees vs independent contractors. The IRS also provides a general overview of independent contractor rights. Local and state regulations are becoming increasingly strict in the gig economy. See your state for any new laws trying to keep up with the changing workforce. Independent contractors have expanded well beyond the trade and construction industries; our firm can help you make sure your rights are protected in any area of contract work.
California contractors only: California’s unique independent contractor’s law (Assembly Bill AB 5) which went into effect in 2020. The State of California Department of Industrial Relations explains AB 5 here.
