What Is the Difference Between Independent Contractor and Self-Employment?
Many people believe that being an independent contractor is the same as being self-employed; however, this is not necessarily the case. In general, someone is self-employed if they are their own boss. They get to decide whom they work for and how much they charge.
Independent contractors never maintain an employer-employee relationship. This means they never have to worry about being fired or taking orders from somebody else. In contrast, an independent contractor sets up an employer-employee relationship with somebody else for only a short period of time. They need to meet someone else's standards or the relationship could be terminated. That is why it is critical to consider the differences between contractors and self-employed professionals.
What Factors Determine If Someone Is an Independent Contractor?
In general, there are three factors that must be considered before someone is deemed an independent contractor. First, the type of work they do matters. It is important because it matters whether someone is under the supervision of someone else or if they are in total control of their own work. Second, the skill required to do that occupation also matters. Is this something they are able to do on their own, or is it something that they depend on another individual or company for? Finally, the equipment they used to do the job is also considered. Does the employee control his or her own equipment, or is the equipment controlled by somebody else? This is important for determining whether someone is an independent contractor.
What Is the Most Common Test for Independent Contractors?
The ABC test is the most common test used for determining whether someone is an independent contractor. If someone can pass all three of these conditions, they are considered to be an independent contractor.
First, the individual has to be free from the direction and control of the hiring entity. This includes the performance of the work and how the employee is supervised. Second, the independent contractor has to perform work that is considered to be outside the scope of the hiring entity's business. For example, a software company may hire someone to fix its plumbing system. Finally, the worker also has to be engaged in an independently established occupation, business, or trade that is the same as the work being performed. If someone can meet all of these conditions, they have passed the ABC test.
What States Use the ABC Test?
There are several states that commonly use the ABC test to decide whether someone is an independent contractor. They include Alaska, California, Connecticut, Delaware, Hawaii, Illinois, Indiana, Louisiana, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, Vermont, Washington, West Virginia, and the District of Columbia. Anyone working as an independent contractor in these states must pass the ABC test if they want to be classified as such. Any states that are not on this list generally have requirements that are very similar, but there may be a few differences that people need to consider.