Legal Considerations

Being an Independent Contractor comes with some legal considerations. Familiarize yourself with The Immigration Reform and Control Act (IRCA) and the Basic Guidelines for Independent Contractors described below.

The Immigration Reform and Control Act (IRCA)

The Immigtration Reform and Control Act of 1986 (IRCA) states that it is illegal to knowingly employ unauthorized workers in the United States.

IRCA requires employers to verify that everyone is legally authorized to work in the US using the I-9 System. An exception to this rule, however, is that an individual or entity is not required to obtain Form I-9 from independent contractors or sporadic domestic workers.

This is important because individuals who fail to comply with Form I-9, or who knowingly hire or contract undocumented individuals, may face civil fines, criminal penalties, or debarment from government contracts. The form provides a paper trail of sorts, and verifies that they knowingly are hiring an individual with work authorization.

Basic Guidelines for Independent Contractors

An individual is an independent contractor if the payer has the right to control or direct only the result of the work and now what will be done and how it will be done.

The earnings of an independent contractor are subject to self-employment tax.

The IRS Common Law Rules determine the rubric for determining if one is an independent contractor or an employee, which include behavioral control, such as facts that show whether the business has a right to control how the contractor does the task for which the individual was hired to do.

In terms of financial control the IRS is concerned with business aspects such as how a worker is paid, how expenses are reimbursed, who provides equipment and tools, and so on.

Lastly, the Type of Relationship examines facts that show written contracts, financing of benefits, permanency of the relationship, and more. More information about these guidelines can be found in the IRS Employer’s Supplemental Tax Guide (Publication 15-A).