With all the freelance and side hustle opportunities out there now days, a lot of us provide services as Independent Contractors. I had a conversation with a friend recently about the trend of contracting out business functions of every type. We had some concern that some of the new contractors may not be aware that each state has requirements that must be met in order to be a contractor rather than an employee.
In Wisconsin (for other states please consult your state licensing agency) there are 9 requirements that must be met to be considered an Independent Contractor.
- The contractor must “maintain a separate business.” This means that the contractor must maintain his/her own office, equipment, materials and other facilities.
- The contractor must obtain a Federal Employer Identification Number (FEIN), file business tax returns, or file self-employment income tax returns with the IRS based on the work or service in the previous year. It is important that the WI Department of Workforce Development specifically points out that a Social Security Number is not a substitute for a FEIN.
- Operate under a contract to perform specific services or work. The contract must contain the agreed price for the work. The contractor is responsible to control the means of performing the work. The Independent Contractor is free to set work hours, and determine the order and sequence to perform the duties contracted.
- The operator is responsible for operating expenses for the work defined in the contract.
- An Independent contractor is paid by bid, per job, commission, or competitive bid.
- The contractor must be subject to profit or loss in performing the contracted work.
- A contractor must have recurring business liabilities and obligations.
- The Independent Contractor must be in a position to succeed or fail if business expenses exceed income.
So next time you apply for a position where they want to pay you as a contractor you should look over your state requirements. I know I have been offered 1099 positions in the past that did not meet the standards in my state.