“If you’re an employee, you’re covered by discrimination, minimum wage, overtime, whistleblower and other laws,” said Donna Ballman , an employment lawyer with Donna M. Ballman PA in Florida. “If you’re a contractor, you may be giving up these rights.”
To protect yourself at work – and from the Internal Revenue Service when tax day rolls around – you should know what you’re getting into before accepting an independent contract job.
In addition to giving up workplace protections, independent contractors take on an extra tax burden, Ballman said. A single person earning $50,000 a year would pay about $4,325 in federal taxes at a traditional job, and about $7,065 as a contractor, according to H&R Block’s online tax calculators. State and local taxes could be even higher.
“As a contractor, you’ll pay both halves of your Social Security and Medicare taxes,” Ballman said. “If you’re an employee, the employer pays half. This is a big chunk of pay to give up.”
That’s not to say that contract work is always a losing proposition.
“If you are creating art, written work, computer programs or other creative works, then it may be an advantage to you to be an independent contractor,” Ballman said. “However, if the contract says the work you are creating belongs to the company, you are probably giving up one of the main advantages to being a contractor. You might be accidentally giving up rights you shouldn’t.”
Your employer may also be skirting the law by hiring you as a contract worker, depending on the details of the job.
Companies often classify people as independent contractors who really should be regarded as employees, said Mike Strauss , an employment litigation attorney with Palay Law Firm in California.
The IRS publishes guidelines that employers should use when classifying workers – and that contractors can review to make sure they’re being treated fairly. If you report to the same workplace for a fixed number of hours each day, and you use your employer’s equipment to do the job, odds are good that you should not be classified as a contractor, Strauss said.
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