Requirements to Become an Independent Contractor

On 26 Jun., 2021

What are the requirements as an independent contractor?

Requirements to Become an Independent Contractor

Many entrepreneurs started signing up for projects, earning money as a sideline, and then gradually, this became their business as independent contractors. This means that independent contractors now have to meet basic requirements. You have to ask yourself: "As long as I am working and getting paid, does it really matter? The answer is: yes, every time you provide a service to your client and get paid, you must comply with several government policies, even if you work for an hour, a week, or a month.

Let's take a look at these basic requirements.

What are the minimum conditions as an independent contractor?

Starting from the bottom up, these 4 things are essential criteria when starting out as an independent contractor:

 

  • First, make sure you are an independent contractor
  • Choose a unique business name
  • Obtain a tax registration certificate 
  • Pay taxes based on your estimated business income

Make sure you are an independent contractor.

First of all, you need to make confirm that you are an independent contractor working in a business for yourself. If you work under the control of someone else, then you are an employee. But, As an independent contractor, you have the right to control what you do and how you do it.

If you are empowered as an employee, you will work for a particular organization. Employees have health insurance, and companies also pay for the equipment they work on. If you are an independent contractor, however, you have to invest in all the equipment. In addition, you can easily manage your expenses in a very efficient way with online expense management, which stores data in the cloud.

By considering the points below, you can be sure that you are an independent contractor. 

Test for independent contractor status

To be clear, there is no particular test that governs the status of a worker. However, many government agencies apply the 'right to know test'. From this test, you can calculate whether you are an employee or an independent contractor. The test points out that if the company that hires you controls every aspect of your work, i.e. what is to be done, when, where and how, you are considered an employee. On the other hand, if the company has negligible control over your work, you can be considered an independent contractor from the first step to the final delivery. 

Some factors that can be considered as an independent contractor :

 

  • Working for several clients at the same time
  • No interruption from hiring companies
  • Investing in business expenses yourself
  • Works according to own schedule
  • Use a written independent contractor contract

Are gig workers & independent contractors the same?

The gig worker can be identified as workers who work for online hiring platforms such as Upwork, Postmates, Uber, Lyft, and many others. Gig workers who work under the term employee-employer for a shorter period of time and have the freedom to work with their own flexibility set their own hours, choose or quit the job. 

But many online companies have control over the assignment decision, payment criteria, and other aspects that are not similar to independent contractor-client relationships.

However, research indicates that California is working to classify gig workers as independent contractors. 

Choose a unique business name.

To look professional in the marketplace and get added value, you should have a business name rather than using your name on an invoice or business card. Then register it with the government. Many business owners do not want their name to be registered as a legal entity of their business. These people can register their name as a fictitious business name, also known as an alias, or DBS (doing business as). For example, 

 

The reasons for registering the business name are as follows: 

 

  • Customers will approach the business owner directly with complaints.
  • The bank will disapprove the account as your business name until you provide proof of identity.

 

How to register as fictitious business name?

Countries generally have different procedures and fees. As in California and many other states, registration is done at the state level by the state registrar. In states such as Florida, registration is done at the state level by the State Department. As a suggestion, you should contact the state clerk's office and ask for the information, i.e. the procedure, requirements, and fees.

Alternative

If you are using your full name as a business name, you do not need to register it.

Get a tax registration certificate.

As an independent contractor, you will have several projects at the same time. Working on tasks can be easy compared to managing your income taxes. To make this process easy and hassle-free, you can use contractor billing software that will single-handedly manage your reports, expenses, track your return on investment and calculate taxes automatically.

Many freelancers, freelancers, or independent contractors are already using this software in different parts of the world. You can find different varieties of this custom billing software in the market. Choose the one that meets your needs within your budget. Invoicera software can be a good choice for independent contractors as it offers more than 18 features at zero cost.

How to register with the IRS as an IC?

To be recognized as an independent contractor taxpayer with the IRS, all you need to do is pay the estimated taxes. You can get the estimated tax form from the official IRS website. (Form 1040 ES)

Closing remarks

Once you have completed the four basic steps, you can provide services as an independent contractor. Of these four steps, the main concern under your watch is tracking the return on your business investment and calculating taxes each year. So, as explained above, the safest way is to use contractor billing software to avoid any questioning if your manual accounting turns out to be wrong by accident. Therefore, do not leave any room for objection as an independent contractor.

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