Understanding your legal rights as an independent contractor or 1099 employee is important. This knowledge can help you build a positive—and legally compliant—relationship with your clients.
How are independent contractor rights determined?
When a company engages someone as an independent contractor, they are responsible for ensuring that person is properly classified. The Internal Revenue Service (IRS), Department of Labor (DOL), and individual states each have different factors that determine whether a worker can be classified as an employee or an independent contractor.
Confusingly, these guidelines can often contradict one another. For example, an employer might claim a worker is an independent contractor according to one set of factors, but the government may categorize that same worker as an employee under a different set of factors.
Millions of workers have been misclassified, according to the IRS. Whether employers do this intentionally—to reduce labor costs and avoid paying state and federal payroll taxes—or unintentionally, it is important to be aware of your general rights as a 1099 independent contractor.
Although laws can differ state to state, independent contractors and 1099 employees have the following 10 general rights:
1. Right to Work How You Want
Your client cannot control how you do your work. It is up to you to decide how you do your job, unless otherwise specified in your contract. You might work three days a week from a rented office, from a beach in Mexico, or keep completely regular business hours from a home office. How you get your work done is a fundamental aspect of independent contracting and a right that makes the flexibility of this type of work appealing.
2. Right to a Written Contract
A contract is an essential legal component of establishing a consultant-client relationship. You should always make sure a signed contract is in place before starting work. A contract should clearly define the relationship between you and your client, stating that you are an independent contractor. At minimum, a contract should also include: a description of the project that you will be working on, a specified time period for completion, payment and billing terms, and termination conditions.
Learn more: Do I Need an Independent Contractor Agreement for Consulting?
3. Right to Manage Your Business
As an independent, it is important to understand that you are responsible for managing your own business. Independent contractors are not eligible for company benefits. This means that your client is not responsible for providing typical employee benefits such as insurance, pension plans, paid vacation, sick days, or disability insurance.
4. Right to Work Where You Want
Being able to work wherever you want is a big plus of being an independent contractor. For many people, this involves working out of a home office. For others, this means working as a digital nomad and working remotely across countries and continents. The exception to this may be if a particular project requires you to be on-site with a client. In that case, you are also generally responsible for providing your own equipment or tools necessary to do your job.
Try it: Create a Home Office with These 10 Tips
5. Right to Provide Your Expertise
As an independent, you are an expert in your chosen field of work. This means that a client should by and large not provide guidance or training. Instead, you should be allowed to complete your work as you see fit. You are responsible for updating your skills and completing any further education or certifications that your work may require.
6. Right to Market Your Services
As an independent contractor, you have the right to market your services to other businesses. You can also work with multiple clients at once. Even if you have a long-term contract with a particular client, you can choose to work on additional projects as well.
Try it: 8 Effective Marketing Strategies for Consultants
7. Right to Work When You Want
Many people ask, “Can you tell an independent contractor when to work?” The answer is no. As an independent, you are free to work whenever you like, unless specified in your contract. Everyone has their preferred way of working and each project will be different. Be sure to communicate with your client up front to set boundaries and expectations about how you plan on working and how they can reach you and best communicate with you throughout the project.
8. Right to Work with Other Independent Contractors
You also have the right to engage subcontractors or partner with other independents to complete projects or specific tasks. As a best practice, during initial conversations, let your client know if you plan to use additional resources to complete your work and include this information in your contract.
Learn more: Consultant Partnership: When Partnership Consulting is Best
9. Right to Get Paid for Your Work
As an independent contractor, you will likely submit invoices for work completed. Pay and payment terms should be discussed during initial contract negotiations. You may have a standard billing rate for your services, or your rate might change based on the project. Be sure ot discuss how and when you would like to invoice your client and outline these details in your contract.
10. Right to Your Own Tax Responsibilities
Clients should not withhold taxes from your payment. As an independent contractor, you are responsible for paying what’s known as self-employment (SE) tax, which includes both the employer and employee halves of Social Security and Medicare (FICA). At the end of the year, your client is required to submit a Form 1099-MISC, which is a report of payments made to you. The IRS Self-Employed Individuals Tax Center is a great resource for more information on how to pay and file taxes.
Knowing your rights as an independent contractor will allow you to run your business as you see fit, help to ensure you are treated fairly, and keep the law on your side. If you do find yourself in a situation where your classification status is in question, you can file an SS-8 form with the IRS to request worker status determination.
Dig deeper: Worker Classification Tests: DOL, IRS, State Tests for Classifying Workers
The information provided in the MBO Blog does not constitute legal, tax or financial advice. It does not take into account your particular circumstances, objectives, legal and financial situation or needs. Before acting on any information in the MBO Blog you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing.