How Do I Pay an Independent Contractor?
By Jean Murray. US Business Law / Taxes Expert
Jean Murray has the education and experience to help you become an expert in your small business, and to provide you with information about business legal and tax issues. With an MBA and a PhD in entrepreneurship, she brings almost 30 years of experience and knowledge to these important business subjects.
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DISCLAIMER: I am not a CPA or attorney, and nothing on this site in articles, emails, blog posts, or other communications is intended to be tax or legal advice. The purpose of this site is to provide general information to readers. No claim is made regarding the accuracy or legal status of information on this site. Federal, state, and local laws and regulations change, and every business situation is unique. Readers should not take action on any tax or legal matter without reviewing options with a tax advisor or attorney.
Question: How Do I Pay an Independent Contractor?
An independent contractor is a business owner that does work for a company on a contract basis. An independent contractor is not an employee and is not under the direct control of
The IRS has several ways to distinguish a worker as an independent contractor or employee. The IRS looks at the general categories of behavioral control, financial control, and the nature of the relationship.
The IRS assumes that a worker is an employee unless you can prove that this person is not an employee. Before you consider paying a worker as an independent contractor. be sure you have correctly classified this worker as an independent contractor. If the IRS or state agencies audit your business and finds that the worker is really a contractor, your business may be subject to fines and penalties.
Options for Paying an Independent Contractor
An independent contractor receives compensation in one of several methods, depending on the agreement set up between your company and the contractor:
- Hourly. Some contractors get paid on an hourly basis; for example, a computer programmer might get paid for hours worked on programming tasks.
- By the Job. The other payment alternative is to pay by the work done or by the job. For example, a blogger might get paid by the number of blog posts created. A cleaning service might get paid a set amount for cleaning your office.