A subcontractor has a client base, and contracts directly or indirectly with individuals and/or businesses for work. But, as a home-based contractor, it is very necessary to understand the rules and regulations about being an employee or being a subcontractor – especially when looking at it through the eyes of the Internal Revenue Service!

According to the IRS, the definition of an independent contractor is as follows (source: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Defined):

“People such as lawyers, accountants, contractors, subcontractors, public stenographers, auctioneers, who follow an independent trade, business, or profession in which they offer their services to the general public are generally not employees. However, whether those people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. Income earned by a person who is working as an independent contractor is SE income.”

Essentially, this means that you must have the knowledge and ability to perform your services without the benefit of directions. The person you contract with can tell you that they want you to handle a task but they cannot tell you how to do it, you have to complete the task yourself.

Additionally, the IRS says:

“You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed. If an employer-employee relationship exists (no matter what the relationship is called), you are not an independent contractor.”

To put this in layman’s terms, figure out where the control lies. A baker is given an order for a birthday cake. The specifications and name are given, along with the flavor of cake that the customer wants. At this point, the customer has to step back, relinquish control and allow the baker to use their skills and expertise to complete the cake. If the project is incorrect, the liability lies with the baker to fix it or the customer (who has the ultimate liability) to request changes or hire someone else to do so.

Knowledge and skills are great examples of a commodity, and the person who has that commodity has total control over them. Clients can tell the contractor what they want done but they cannot tell them how to do it or exert any control over the way in which they perform their contracted duties. If a subcontractor’s end-product is not to their liking, they can reject the work and send you back to the drawing board or find someone else to do it. In order to remain an independent contractor (in the eyes of the IRS) a contractor must take control for their commodity and offer it “as-is”.

If you have a feeling that your boss is being bossy or you are losing control of your work, lay the ground rules accordingly by visiting IRS Publication 15-A and understanding the difference between being an employee or being an independent contractor – and sharing it with a potential client could be advantageous to your contracted relationship. By doing this, you will be able to eliminate hassle, unreasonable expectations and legal liability if you know where you stand now and for your home-based future!

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©2016 ~ All Rights Reserved ~ By Tammy Harrison, wife, mother of four children.  Tammy can be reached by emailing her at hrhtqop (at) gmail (dot) com.