Many people secretly dream of being their own bosses. One way to do that is to become an independent contractor.
Independent contractors work for themselves in their own businesses, but there’s more to it than that. According to the IRS, an independent contractor is different in specific ways from being an employee or even owning another type of business. Contractors
| | Independent contractor FAQs
What is the difference between an independent contractor and an employee?
According to the IRS, whether someone is an independent contractor or an employee is a matter of “behavioral control.”
In general, someone who performs services is considered an employee if the employer can control what work will be done and how it will be done. Employers also withhold income, Social Security and Medicare taxes, and pay unemployment for employees. Independent contractors must handle such issues themselves.
In general, people who hire independent contractors have the right to control only the result of the work and not the means or methods of accomplishing the result.
Paying independent contractors
People who hire independent contractors have to file Form 1099-MISC, Miscellaneous Income with the IRS, to report payments for services for which they paid $600 per year or more.
If the following additional conditions are met, payment is considered non-employee compensation:
• A payment to someone who is not an employee
• The payment was for services in the course of a trade or business
• The payment was made to an individual, partnership, estate, or in some cases, a corporation.
Source: Internal Revenue Service |
usually provide a service.
The agency says, "The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result."
Examples of independent contractors are lawyers, construction contractors, and consultants. They follow a profession in which they offer services to the public, and people "contract" with them for their services for specific projects.
Planning consultant
Mark Barnes is a planning consultant based in Astoria. He works out of his home, but says that’s not necessarily the norm.
"There are plenty of independent contractors who have physical offices," he said.
Barnes is a city planner - he works for local governments and for applicants who are trying to get permits.
"People need assistance with the complexity," he said. "And they sometimes don’t have the time to put together material."
He’s been in business as an independent contractor for the past 12 years. Barnes said one critical difference between being an employee and a contractor is that contractors have clients.
Another difference between contractors and employees is that contractors don’t get paychecks.
"You only get the money that’s left after you pay your expenses," he said. "And you have to find clients."
And while employees usually get paid to work set hours, contractors get paid by the project even if they charge an hourly rate.
"Nobody pays me to buy stamps at the post office," Barnes said. "All that stuff that has to get done outside of a project is on you. That includes doing the books and taking out the trash."
Health insurance is another considerable expense for independent contractors - premiums are typically quite a bit higher for individual insurance than for an employee plan.
Then there’s the phenomenon of no paid vacation.
"You have to make enough money to cover all the costs that might be covered by somebody else in an employee relationship," he said. "If somebody leaves me a message when I’m on vacation I generally return the call."
These factors and more are why independent contractors generally charge hourly rates that may seem high. But in many cases if you spread contract earnings over a calendar year, some years turn out lean and others prosperous.
Barnes said despite some drawbacks, he can’t see himself going back to being an employee.
"You have a lot of freedom; you can turn down jobs. You don’t have to ask someone if you want to buy a piece of software," he said. "If you’re an employee you can either take that assignment or quit."
Barnes said he’s been fortunate in that steady work has never been a problem.
"I’ve never been sitting down waiting for the phone to ring," he said. "Most people can’t last long if they don’t have enough work to cover their costs."
Barnes works from home these days. He said there is no state licensing for planners in Oregon and Washington, but he obtains local licenses as needed in the cities in which he works.
His rates are generally about $95 an hour. He said contract rates for similar work in Portland or Seattle are higher.
"If I can get half of my time billable I’m doing pretty well," he said.
Barnes has no employees, but works with other independent contractors on some projects.
He said the freedom of working independently is a potent motivator for many consultants.
"People who have been self employed for a period of time," he said wryly, "no one in their right mind would hire them."
Land surveyor
Karl Foeste owns Coast Surveying in Warrenton. His company provides boundary surveys, subdivision plats, timber land surveys and other related services.
He’s been an independent contractor for 38 years. He said people hire surveyors to do specific projects
"It [the profession of surveying] works well for independent contracting, because it requires you to work alone and pay attention to detail," he said. "It’s advantageous to be your own boss and have personal freedom."
Foeste said business has been steady all along.
"In fact, the only slow period has been the last 14 or 15 months," he said. "Prior to that it was fairly busy."
His clients are attorneys, land developers, timber companies, construction, and some private individuals. He also does project work for municipalities and port commissions.
Foeste has an office and a small staff that includes two employees who are field crew. One has been with his company since it began, the other for 30 years.
"Part of the success of my business is having good long-term employees," he said. "That’s important in a surveying firm because they learn the history of the area, and that takes time."
Foeste said surveyors also rely on county surveying departments, and he said Clatsop County does an excellent job. He said independent surveyors need to be able to rely on accurate county data.
Foeste said surveys generally cost a minimum of $600-$800.
"It requires a lot of research and field work," he said. "Most people are surprised at how much surveying costs. They don’t see the background work."