Some massage therapists may find themselves categorized by their employers as an independent contractor. But what exactly does this mean, how does it differ from a traditional employee, and what are the pros and cons of being an independent contractor? Read on to find out.

WHAT IS AN INDEPENDENT CONTRACTOR? THE BASICS

An independent contractor is an individual who works as a freelancer or is self-employed and provides a service for a company or individual who hired them. According to the IRS: “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”

“An individual is an independent contractor if they control or direct the manner in which their work is performed and what will be done, while the result of the work is set out by the payer,” explains Larry Disparti, an attorney and founder of Disparti Law Group. “Generally, an independent contractor is considered self-employed, and their earnings are reflected on a Form-1099. In comparison, an employee’s earning are reflected on a W-2 tax form, in addition to their taxes being withheld and benefits provided.”

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In simpler terms, independent contractors typically find they have much more autonomy while still working for an employer. Traditional employees will need to abide by an employer’s policies and procedures, subjecting them to a greater degree of control. This is not to say that an independent contractor is completely free from oversight, but the oversight will be far less.

INDEPENDENT CONTRACTOR PROS AND CONS

Like with just about anything, there are pros and cons of being an independent contractor, and individuals need to weigh what will work best for them both personally and financially.

Some of the possible benefits of being an independent contractor include:

• Ability to be one’s own boss
• Flexibility in workload and schedule
• Often earns more take home pay than employee in same position (as employer doesn’t need to provide benefits, equipment, pay social security tax, etc.)
• Claim tax deductions that regular employees cannot (may result in paying less income tax)

The possible disadvantages of being an independent contractor include:

• Do not qualify for employee benefits
• Must purchase own tools and equipment, as needed
• Must withhold their own federal, state, and local taxes

WHAT ARE THE TAX IMPLICATIONS OF BEING AN INDEPENDENT CONTRACTOR?

In the eyes of the IRS, an independent contractor is self-employed, which means as an independent contractor, you’ll be subject to self-employment tax.

“An independent contractor is required to withhold their own federal, state, and local taxes. They must also fund 100% of their Social Security taxes and Medicare costs,” Disparti says. “It is also advisable to obtain a federal employer identification number (EIN) rather than utilizing a Social Security number for purposes of reporting earnings.”

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Because the tax process can sometimes become more complicated for individuals who are independent contractors, Disparti recommends speaking with a tax professional early in the tax season to discuss any tax-related issues that may arise.

WHAT SHOULD EMPLOYERS KNOW?

When it comes to employers deciding whether to classify someone as an employee or an independent contractor, the main thing to remember is how much control and direction an individual needs in order for the business to be as successful as possible. “If control and direction are vital to the success of the business, it is generally advisable to classify a new hire as an employee. That way, you can customize your regular business operations exactly as you see fit,” Disparti says.

Additionally, it is a good idea for employers to review classifications of workers on an ongoing basis to make sure employees/independent contractors are categorized correctly, and that employers are taking into account state laws too, in order to mitigate employer liability if a worker ever decides to file a lawsuit.

If, as an employer, you are unsure if you are misclassifying people, you should call an attorney who specializes in employment law.

This article is meant to provide a general overview of independent contractors and is not intended to provide any sort of legal or tax advice. Proper attorneys and tax experts should be consulted with any questions regarding employment classification.