Legal definition of independent contractor
Corporate Finance & Taxation Legal Terminology

independent contractor

n. a person or business which performs services for another person or entity under a contract between them, for a compensation.
An independent contractor is distinguished from an employee, who works regularly for an employer. The exact nature of the independent contractor's relationship with the party hiring him/her/it has become vital since an independent contractor pays his/her/its own Social Security,
income taxes without payroll deduction, has no retirement or health plan rights, and often is not entitled to worker's compensation coverage. Public agencies, particularly the Internal Revenue Service, look hard at independent contractor agreements when it appears the contractor is much like an employee.

An independent contractor must be able to determine when and where work is performed, be able to work for others, provide own equipment and other factors which are indicative of true independence.
See also: employee.
From taxation standpoint, people such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.
Source: Internal Revenue Code. website
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