Independent contractor

An independent contractor is a self-employed individual who provides services to another business or individual under a contract or agreement.

Homebase Team

Min Read

What is an independent contractor?

An independent contractor is a self-employed individual who provides services to another business or individual under a contract or agreement. Unlike employees, independent contractors typically control how and when they complete their work, pay their own taxes, and are not eligible for health insurance or paid time off benefits.

Hiring independent contractors can be a flexible and cost-effective way for small business owners to get help on specific projects or roles. However, it’s essential to understand the differences between employees and contractors to stay compliant with labor and tax laws. Tools like Homebase can help you keep payments organized and simplify 1099 tax reporting.

How is an independent contractor different from an employee?

The key difference lies in control and independence. Independent contractors:

Decide how and when they work
Use their own tools or equipment
Set their own schedules
Often work for multiple clients
Pay their own income and self-employment taxes

Employees, on the other hand:

Work under the direction and control of the employer
May receive training or supervision
Are typically provided tools and a workspace
Receive regular paychecks with taxes withheld
May be eligible for benefits like health insurance or vacation pay

Why businesses hire independent contractors

There are several reasons small businesses choose to work with contractors:

Cost savings – No need to pay benefits or withhold payroll taxes
Flexibility – Contractors can be hired for short-term or specialized work
Expertise – Many contractors bring niche skills or experience
Lower risk during uncertain times – Contractors aren’t permanent hires

Independent contractors can bring tremendous value to your business, but it’s important to understand how they differ from employees. Proper classification, clear contracts, and solid recordkeeping will help you stay compliant and build successful working relationships.

Sign up for Homebase to confidently manage your team—whether they’re employees, contractors, or a mix of both.

Common examples of independent contractors

Independent contractors can be found in a wide range of industries. Some typical roles include:

Freelance graphic designers
Marketing consultants
Construction workers
Web developers
Accountants or bookkeepers
Rideshare or delivery drivers

Whether someone is a contractor or employee depends on how the relationship is structured—not just the job title.

How to classify a worker correctly

Misclassifying an employee as an independent contractor can result in fines, back taxes, and legal headaches. To classify workers correctly, consider these questions:

Do you control how, when, and where the work is done?
Are you providing training, tools, or ongoing supervision?
Is the relationship expected to be ongoing?
Can the worker set their schedule and work for others?

If you're unsure, the IRS offers a 20-factor test and Form SS-8 to help determine worker status. When in doubt, consult a tax advisor or employment attorney.

What paperwork is needed for independent contractors?

If you hire an independent contractor, be sure to collect and file the correct paperwork:

W-9 Form—Gather this at the beginning of the relationship to collect the contractor’s tax identification information.
1099-NEC Form—If you paid the contractor $600 or more during the year, file this form with the IRS and send a copy to the contractor.

These forms are essential for tax reporting and ensuring your business stays compliant.

How Homebase helps you manage independent contractors

Managing payments and tax documents for contractors can get messy, especially during tax season. That’s where Homebase Payroll steps in to help. With Homebase, you can:

Track payments to contractors separately from employees
Automatically generate and file 1099-NEC forms
Collect W-9s securely and store them in one place
Stay compliant with IRS deadlines and requirements

Try Homebase Payroll to simplify contractor management and get ahead of year-end tax reporting.

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