As an independent contractor, it can be easy to make mistakes that could land you in hot water with the law. Whether this is related to tax matters or contractual obligations, understanding the rules and regulations applicable to your work is crucial. In this blog post, Jim DePalma is going to discuss how businesses can stay within the law as independent partners – no matter if they are working on a contract basis for a single company or providing services more generally across multiple entities. So read on – these tips by Jim DePalma will enable any business owner looking to hire contractors (or who already employ them) to remain compliant with their legal requirements while also protecting themselves from potential risks of non-compliance!
Jim DePalma Lists The Keys To Staying Within The Law As An Independent Contractor
When becoming an independent contractor, there is a lot of responsibility to ensure you are staying within the law, says Jim DePalma. The two key elements to remaining compliant with federal and state regulations when working as an independent contractor are making sure you understand your tax liabilities and properly classifying employees.
Tax Liabilities: As an independent contractor, it’s important to understand that you are expected to pay taxes on income earned from clients or employers throughout the year. This means that income earned as an independent contractor must be reported in quarterly estimated tax payments for both federal and state taxes. Additionally, self-employment taxes should also be paid depending on the type of business structure chosen. Contractors may have additional liabilities based on their business activities, such as payroll taxes or excise taxes. It is vital that contractors make sure they are aware of their tax liabilities and remit the correct payments in a timely manner to avoid penalties or other legal issues.
Data Statistics: According to the Internal Revenue Service (IRS), an estimated 14 million independent contractors file income taxes as self-employed taxpayers each year. Additionally, statistics from the U.S Small Business Administration show that more than 90 percent of businesses with fewer than ten employees were classified as independent contractor firms in 2020.
Employee Classification: When hiring new employees, it is important, as per Jim DePalma, for employers to classify them correctly according to federal and state laws. This includes classifying them as either an employee or independent contractor depending on the specifics of the job duties and the relationship between employer and employee. If an employer incorrectly classifies an employee as an independent contractor, they may be responsible for back taxes and other related liabilities. Additionally, employees could potentially file a lawsuit against the business if their job duties do not fit within the definition of an independent contractor.
Real-Life Example: For example, in 2018, an online retailer was sued by some of its workers who had been classified as independent contractors when they believed they should have been classified as employees. The case went to court, where the judge concluded that the company should have provided additional benefits, such as health insurance and overtime pay to these employees since they were misclassified as independent contractors. As a result, the company was forced to pay out millions of dollars in back taxes and other related liabilities.
Jim DePalma’s Concluding Thoughts
According to Jim DePalma, by understanding the laws surrounding tax liabilities and employee classification, independent contractors can remain compliant with federal and state regulations while also protecting their businesses. It is important to consult a qualified accountant or legal professional if you have any questions regarding your specific situation. Taking the time to understand all of the laws and regulations associated with being an independent contractor will go a long way in ensuring that your business remains successful in the long run.