Am I an Independent Contractor?
When securing employment in the state of Pennsylvania, it is important to distinguish whether you are an employee or an independent contractor. One of the main reasons you need to distinguish yourself as an employee or independent contractor is for income tax purposes. An employee files a W-2 while an independent contractor files a 1099 Form. It is important to remember that just because an employer or contract may state you are an independent contactor doesn’t mean you actually are one. There are certain requirements that must be met to qualify as an independent contractor.
There are generally two prongs that a worker must satisfy to classify themselves as an independent contractor. First, the worker must be free from control or direction over performance of services BOTH under contract and in fact. For example, a worker CAN do the following as an independent contractor:
1. Set their own work hours;
2. Choose which jobs or tasks to complete;
3. Have their office or place of business wherever they choose; or
4. Make the termination of their employment subject to contractual agreement.
This list is NOT all-inclusive but just a few examples.
On the flip side, a worker CANNOT do the following and be classified as an independent contractor:
1. Hire, supervise, and pay assistants for the employer;
2. Do their work on employer’s premises;
3. Do their work in the sequence set by employer;
4. Have their hours set by the employer; or
5. Have to comply with employer’s instructions about the work
Remember, these lists are NOT all-inclusive but just some examples of what you can and cannot do in order to be classified as an independent contractor.
The second prong to qualify as an independent contractor requires that the worker be customarily engaged in an “independently established trade, occupation, profession or business.” Such examples of an independent contactor would be a lawyer, accountant, IT specialist, etc. Generally, for work to qualify as an “independently established trade, occupation, profession or business,” the following are a few requirements that would need to be met:
1. You possess the essential tools, equipment and other assets necessary to perform the services independent of the person for whom the services are performed;
2. You realize a profit or loss as a result of performing the services; or
3. You maintain a business location that is separate from the location of the person for whom the services are being performed
This list is NOT all-inclusive but just some examples of what qualifies as an “independently established trade, occupation, profession or business.”
As mentioned previously, just because you call yourself independent contractors, does not automatically make it so. If you have a contract with your Employer classifying you as an independent contractor, it doesn’t mean it’s true. Even if you file a 1099 Form, doesn’t mean you are an independent contractor. Remember the two prongs and that will help you in determining whether you are in fact an independent contractor.