What Is This Independent Contractor Business Anyway?

According to the IRS, "The general rule is that an individual is an independent contractor if you, the payer, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result."

The concept of the independent contractor sometimes called "subcontractor" or "freelance" massage therapist falls essentially along the same lines as owning a private practice. However, keep in mind that it is rather difficult to provide a clear definition that is sufficiently specific and at the same time comprehensive enough to be applied to all situations. In saying that, here is a picture of what an independent contractor can be:

An independent contractor can be defined as a person engaged in an independently established business. In other words, a "person engaged in an occupation that contracts to work according to his or her own methods, without being subject to control of the employer except for results." The basic idea of an independent contractor relationship with that of the individual or company is that the massage therapist/skin care specialist has an independent occupation and is only responsible for the finished product or service. According to the Internal Revenue Service (IRS), "the general rule is that an individual is an independent contractor if? [the company employing services has] the right to control or direct only the result of the work and not the means and methods of accomplishing the result."

Some legal aspects to consider:

  1. As an independent contractor you are not required to engage in any other labor other than the services you have been hired for. (Example: If you are hired to work as an independent massage therapist, you have no obligation to clean or engage in other tasks unrelated to massage therapy.)
  2. If you are required to be on-site, the employer must pay you at least minimum wage.
  3. Any commission pay you receive must at least equal minimum wage.
  4. As an independent contractor, you are not required to hold a business license, however, it would be advisable.

The Pros:

  1. A true independent contractor controls his or her own hours worked.
  2. A true independent contractor is paid when the product/service(s) are finished.
  3. The client cannot dictate how a contractor reaches a final result.
  4. Independent contractors stand the lowest risk of being audited by the IRS.
  5. In many instances, you can get paid more money working as an independent contractor as opposed to working as an employee.
  6. Deductions, deductions, deductions!
  7. Freedom!
  8. Independent contractors have the benefit of writing off their expenses while someone else runs the facility at which they perform their services.

The Cons:

  1. Must pay income tax.
  2. Must pay Federal Unemployment Tax Act taxes.
  3. Must pay Social Security taxes in the form of the self-employment "Federal Insurance Contributions Act" tax (which is about 2-3 percent less than that which a company employer would have to pay for an employee? this can take a big bite out of your cash though.)
  4. Must estimate your individual taxes for each year, then pay on a quarterly schedule to both the federal & state governments. (Failure to pay or late payment translates into hefty penalties with interest added.
  5. Business expenses? this can actually be a good thing though.
  6. Must pay all health insurance costs.

If you are working as an independent contractor and feel the employer you are working with is not working within the legal bounds of the position, contact the IRS and request Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding or seek legal council.

Probably one of the most effective tools to protect yourself as an independent contractor is that of the written contract, which will outline exactly what services will be procured, the rate at which your services will be rendered and any other terms of the job. A "simple letter of agreement" may accomplish these points.