Do You Know Whether You Need Contractors Insurance Or Not?

Over the last 5 to 10 years much has changed in the business world and in the world of self-employment. Many of us have decided that it would be better to work for ourselves, rather than for an employer and it’s hardly surprising that the number of subcontractors across the country has skyrocketed during this period. It’s certainly possible to do the same work as an employee or subcontractor and from the outside looking in, everything appears to be just the same. But there are critical differences and differences that you must be aware of before you seek to change your status in any way.

For example, the IRS is particularly interested in determining whether or not you are employed or self-employed. It’s true that some may seek to gain the best of both worlds and may not be accounting for their taxes correctly. If you work as an employee then the employer is responsible for withholding taxes, Social Security and Medicare taxes, as well as unemployment tax. If you are a genuine independent contractor the employer does not have to account for those taxes; however, you have to take care of the details yourself.

In many cases it may be seen as a more palatable arrangement between the two parties to treat the arrangement as one of a subcontractor. Note that the IRS is very keen to analyze any such arrangement. If the employer is effectively dictating the way that you do your work, or working hours, for example, then that raises a red flag.

It is essentially the degree of control that dictates whether you are a subcontractor or an employee. The way that financial arrangements are dictated is seen as one of the common law rules. If any types of benefit are seen to be paid, such as vacation pay or pension plan, this is another common law rule used by the tax regulators. Principally, however, the company cannot dictate how or where the worker performs the job.

Apart from the tax situation if you are to be a subcontractor then you should certainly consider contractors insurance. This is a type of business insurance that is specific to your needs. Remember that the employer is not covering you at all in this scenario and you need contractors insurance to limit your exposure.

Are you sure that you are aware of the exact business relationship you have? Are you an employee or a subcontractor?