What Is a Contract Laborer?

There are many important differences between working as an employee and a contract laborer.

Contract labor is the work performed by independent contractors for other businesses. It is also the name given to the relationship between independent contractors and employers.

Differences from Traditional Employment

This relationship differs from the traditional employer-employee relationship in that the work is temporary and the contractor also has more control of the work.

Taxes

Independent contractors generally pay double the tax rate because they have to cover the payroll taxes that would have been paid if they had an employer.

Hiring

When hiring for contract labor the employer creates a contract that details the responsibility of the independent contractor and specifies the nature of the relationship. Doing this frees the employer from payroll tax and health benefit obligations.

Common Law Test

The common law test is a rule of thumb from the IRS to determine if an individual is an employee or a contract laborer. There are three categories: behavioral, financial and type of relationship. If a worker has control over their work, payment structure and no written guarantee of benefits, then they are a independent contractor.

Tips

Since rules defining contract labor and independent contractors vary widely across states, it is very important to firmly establish the nature of the working relationship in the contract.

References

• IRS.gov: Independent Contractor (Self-Employed) or Employee?
• Texas Workforce Commission: Independent Contractors / Contract Labor
• Social Security Online: If You Are Self Employed

Resources

• Score.org: Know the Rules For Hiring Contract Labor