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How to Work as an Independent Contractor

Consultants and freelancers need to follow small business guidelines

By Small Business Administration | February 6, 2013

Commonly known as consultants, freelancers and self-employed, independent contractors are individuals who are hired to do a particular job, receiving payment only for the work being done.

Independent contractors are business owners, and are not their clients' employees. They do not receive employee benefits or the same legal protections as employees. They are often responsible for their own expenses.

If you think you want to be an independent contractor, explore the resources below.

Start Your Business

Like all other small business owners, you will need to follow some essential steps to starting your business. This includes getting the proper tax registrations, business and occupational licenses and permits from federal, state and local governments to operate legally.

As an independent contractor, you will also want to create a standard agreement for your services. You can find a number of sample agreements on the Internet, but it is best to consult an attorney to draft one specifically for your business, since your agreement will be a legal document between you and your client.

Find Business Opportunities

Large and small businesses, organizations and government agencies hire independent contractors for a wide variety of jobs, including accounting, engineering, construction and trucking.

These resources will help you connect with potential clients and locate opportunities:

Find out how you can advertise your professional services and locate clients using this directory of websites. Learn how to bid on contracts, including professional and trade services, with federal and state government agencies.

Operate Your Business

As an independent contractor you are responsible for paying your own taxes, Social Security, unemployment taxes, workers' compensation, health insurance and other benefits. In addition, you and your client should understand the differences between an independent contractor and an employee, as well as your legal rights and responsibilities.

Pay Your Taxes

Independent contractors must pay federal taxes on income and FICA; however, your client will not withhold taxes for you. As a business owner you will need to pay estimated taxes throughout the year instead of once a year on April 15.

The following IRS resources will help you understand how to pay federal taxes as an independent contractor: Get all the information you need on federal tax at this one-stop resource for independent contractors. Obtain a List of IRS Forms Frequently Used by Independent Contractors.

Depending on the location of your business, you may be required to file state and local income and business taxes.

Are You an Employee or Independent Contractor?

Because you or your client calls you an independent contractor doesn't mean that you are one. There are legal requirements that classify workers into employees and independent contractors. Before starting your first job (or even the next one), it's important to become familiar with these distinctions.

As an independent contractor you do not have the same legal rights and protections as employees:
  • You are paid only for the work performed. Your clients are not required to pay employee benefits under the Fair Labor Standards Act (FLSA), including overtime and minimum wage.
  • You are not covered under your clients' workers' compensation benefits.
  • You are not entitled to receive your clients' employee benefits.
  • You are not covered under Equal Employment Opportunity laws as they apply to your client's relationship with its employees.
  • Your taxes are not withheld and paid by your client, including income, FICA and unemployment.
If your client misclassifies you as an employee, they may be required to pay back taxes, and provide employee benefits, workers' compensation, unemployment and more.

Just as your client should be very careful to distinguish between employees and contractors, so should you. If you feel you are being treated as an employee, complete Form SS-8 to ask the IRS to make a determination. If the IRS determines you are an employee, you should immediately contact an attorney. You may be able to file a lawsuit against the employer under FLSA, state unemployment or workers' compensation laws, and others.