Independent Contractor

An independent contractor is an individual who does work for another individual or company. The contractor is, by definition, independent, and not an employee of the hiring company.

A perfect example of an independent contractor is a cleaning service. The service comes into your office to do work, but the cleaning service workers are not employees of your company.

Independent contractors are considered to be business owners. They report income on their personal tax returns, and they can deduct business expenses. 

Independent Contractor is not an Employee

For various reasons (mostly to do with payroll taxes), tax authorities are concerned that workers are appropriately classified as either independent contractors or employees.

Tax authorities determine the status of workers on a case-by-case basis, and it looks at several factors - including behavioral, financial, and control - to determine status. If you are unclear about the status of people who work for your business, you can request a determination from the Tax Authority.

A wrong classification of a new worker as an independent contractor can create tax liabilities, fines, and penalties for your business, so be sure that the worker you are hiring is an independent contractor, not an employee.

Independent Contractors need to Sign a Contract

In every case, before you hire an independent contractor, create an agreement and get it signed by the contractor. The agreement should include details about the requirements of the contractor, pay rates, and sections about non-disclosure and confidentiality.

If the contractor is creating intellectual property, the ownership of this property should be made clear. Finally, you may want the contractor to sign a non-compete agreement.