As of 2016, around 40% of the U.S. private workforce is an independent consultant, or has worked as an independent at some point in their career. These workers touch all segments of the economy – from Uber drivers to marketing professionals to developers serving major companies.
But with so many types of independent workers, you may wonder – what do the terms independent consultant or independent contractor really mean?
What’s In a Name?
Independent professionals go by many names. Consultant, contractor, freelancer, self-employed, and even “small business owner” may be used accurately to describe a non-employee that performs work for a company for an agreed upon price.
According to the MBO Partners State of Independence in America 2016:
The overall proportions reporting these segments have been consistent since 2013, but there is significant variation by age. Millennials are far more likely to self-describe as freelancers (11%) compared with non-Millennials (3%). And they are significantly less likely to say they are self-employed (29%) than non-Millennials (42%). Gen Xers are more inclined to say they are business owners (16%) than either Millennials (10%) or Boomers (13%).
Legally, independent workers fall into the classification of “independent contractors” or “small business owners” if they are not full-time employees under the law.
According to the IRS, “People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors.”
Organizations such as the IRS and the Department of Labor have a number of tests to determine if a worker is legally an employee or independent professional, which include the economic realties test from the DOL and the IRS 20-Factor Test.
However, the general rule is that individuals are independent consultants if the client controls only the result of the work that is done, and not what or how it will be done.
According to the IRS “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.” When a client is found acting in opposition to these rules, they are liable for misclassification and other costly lawsuits.
Independents – and clients – engaging through a service like those of MBO Partners are carefully tested to make sure they are categorized properly.
Making the Leap to Independent Consulting
Independent consultants exist across industries and areas of expertise. These workers can be graphic designers, IT professionals, writers, procurement specialists, or in another field entirely – the consultant is limited only by their ability to have a clearly articulated area of expertise that can be packaged and sold to clients
The consultant will seek to enhance aspects that are already working well for the client(s) while redefining, eliminating, or changing aspects that appear to hinder the overall operation. This may include making recommendations for merging departments, adding or eliminating positions within the operational structure, or completely reworking a process associated with one or more areas.
Companies that hire an independent consultant are seeking a strategic problem solver - an expert with the ability to diagnose an issue and develop and implement a plan to cure it, not just a body to complete a specific task. Some independents enjoy the intricacies of this level of strategic detail, while others prefer to simply work in their area of specialty. The idea is to make a conscious choice about how your services are positioned to your clients.
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