25 Apr I am an Independent Contractor – Who is my employer?
As an Independent Contractor, also referred to as an IC, you are a self-employed individual who will be performing services or duties within contract terms of a client. Independent Contractors engage in an agreement to provide services to a client for a fee and not placed on an organization’s payroll system. Invoices are created for all services rendered, and then paid by an Accounts Payable team. Upon receiving payment, taxes are not withheld by the client– but for the tax year, earned income will be reported by the client by submitting a 1099 form to the federal government.
Since you are self-employed, it is important to understand that the client is not considered your employer. Independent Contractors need to be advised that they do not have the same employment classification as a full-time employee. As such, Independent Contractors are not eligible for the same benefits offered by direct employees of the client including, but not limited to, paid vacation, health insurance, worker’s compensation or unemployment benefits.
While being an Independent Contractor may initially seem appealing due to the ability to deduct certain business-related expenses and take advantage of tax deferred accounts, there are many associated risks. For instance, tax implications such as Social Security and Medicare contributions are twice as much to cover both employer and employee portions and under the Affordable Care Act, Independent Contractors are legally obligated to acquire health insurance.
The question you should be asking yourself is … Should I be an Independent Contractor for this specific situation? In order to accurately answer, you should evaluate the risks and rewards of an Independent Contractor vs. Direct Employee classification while factoring in the cost of insurance liability requirements, legal and tax obligations, operational expenses and ultimately job security.
Senior Program Specialist