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What are the criteria for independent contractors?

As a New York small business owner and employer, one of the most important things you must understand is the difference between your actual employees that you hire and the independent contractors you engage to do various pieces of work for you.

The New York State Department of Labor provides a comprehensive list of the differences between employees and independent contractors, and reminds you that you must provide unemployment insurance and workers’ compensation benefits to your employees, as well as pay the employer’s share of FICA taxes. You need not do any of these things for independent contractors you engage.

Independent contractor criteria

The most important characteristic of an independent contractor is that (s)he owns his or her own business and offers his or her services to others as well as to you. When you engage an independent contractor to undertake some of your business’s projects, specific pieces of work, etc., you cannot supervise him or her or direct how (s)he must perform the work. Other independent contractor criteria include the following:

  • (S)he sets or negotiates his or her own pay rate.
  • (S)he sets his or her own work schedule.
  • (S)he can refuse any work you offer him or her.
  • (S)he pays his or her own expenses and provides his or her own equipment.
  • (S)he keeps his or her own place of business.
  • (S)he carries his or her own insurance.

When you pay an independent contractor for work (s)he does for your business, you pay him or her the gross amount (s)he earned during the pay period for which you are paying him or her. You do not withhold any taxes or anything else on his or her behalf. Each January, you must send the independent contractor a Form 1099-MISC stating the total amount you paid him or her during the previous calendar year, assuming that amount came to $600 or more.

This is general educational information and not intended to provide legal advice.

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