Independent contractors are workers who are non-employees and perform services for a business. Telling the difference between employees and independent contractors can be difficult, and many factors are considered to distinguish the two. Typically, a worker’s classification as an employee or independent contractor depends on how much control the company has over the worker.
If you are an independent contractor, you may be asked to sign a non-compete agreement or the employer may include a non-compete provision in your employment contract. Though a non-compete clause can vary in its structure, it typically prevents you from starting a competing business or working with a different company for a period of time after your employment ends. Complications can arise with non-compete clauses if you are considered an independent contractor rather than an employee.
Under the Internal Revenue Service (IRS), employees and contractors are defined differently. Being correctly classified as an independent contractor or an employee is crucial for tax purposes.
Your employer should examine the relationship between you and the company to classify you as either an employee or an independent contractor. Your worker classification determines whether your employer must:
Typically, businesses are not required to withhold taxes on payments made to independent contractors. The earnings of an independent contractor are instead subject to self-employment tax. Generally, you will be considered an independent contractor if your payer can control or direct the result of your work but does not control what will be done or how the work will be done.
Employers use three categories to determine whether a worker is an employee or an independent contractor:
If a business misclassifies an employee as an independent contractor, the employer may be liable for employment taxes. On the other hand, if an employer provides a reasonable basis for not classifying a worker as an employee, the requirement of paying employment taxes may be avoided.
Employers can receive help from the IRS in determining the status of workers through the use of Form SS-8. If you are a worker who believes your employer may have improperly classified you as an independent contractor, you can use Form 8919. This form will help you calculate and report your share of uncollected Medicare taxes and Social Security due on your compensation.
Non-compete clauses are beneficial to businesses that invest considerable effort and time into training employees. If you have been classified as an independent contractor, you may be facing a non-compete agreement or an employment contract with non-compete clauses.
Non-compete agreements are contracts between employers and workers in which workers agree not to compete with the employer during or following employment, usually for a certain amount of time. This legal contract prevents an employee from working for a competitor or starting his or her own business that competes with the employer.
An employer may also ask you to sign a non-compete agreement as a way to prevent former employees from revealing sensitive information or secrets about operations, customers, clients, strategy, pricing, formulas, ideas, methods, practices, salary, public relations, future products or marketing plans.
A non-compete agreement should be equitable and fair to both parties. To be considered enforceable, a non-compete agreement must include:
After employment ends, non-compete agreements are usually in effect for a certain length of time. A non-compete agreement must contain a realistic timeline and cannot permanently bar you from furthering your career in the field.
For an independent contractor, non-compete clauses could reclassify you as an employee. A non-compete for contractors can actually be an important factor in determining whether a worker is truly an employee rather than a contractor. If an independent contractor is reclassified as an employee, the company could be subjected to penalties, workers compensation insurance and overtime pay.
Even if you remain classified as a contractor, a non-compete clause may not be enforceable. Independent contractors are expected to be experts in their chosen field and are likely working for multiple companies at once. If one company attempts to enforce a non-compete clause, your ability to find work may be affected. If a non-compete clause unreasonably restrains your ability to work, most courts in the U.S. will not enforce it.
Contract disputes arise regularly over the classification of employees, overtime hours and independent contractors. An issue with your contract can interfere with your rights or your compensation. An experienced lawyer can help you resolve contract issues and recover the compensation you deserve.
The employment lawyers at Weisberg Cummings, P.C. are here to assist individuals and families throughout the state of Pennsylvania. We provide personalized, thoughtful service and will learn as much as possible about your goals and circumstances. Combined, our lawyers have more than four decades of experience, and we prove our dedication to our clients by returning emails and phone calls promptly.
If you believe you have a contract dispute, contact us today to schedule a free consultation with one of our attorneys.
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