So you're so happy you just got hired, but the person you're working for just called you a name: "independent contractor." Now what does that mean? What kind of a business relationship is that? Can you come to the company picnic? What does this mean for you?

While an "independent contractor" is different from a standard employee, the exact definition of your role is not set in stone. To prevent any unwanted surprises, it is essential to define the exact business relationship between you and your employer prior to beginning work.

What is an independent contractor?

We can look in three different places when answering this question. A sometimes difficult status to define, what makes an independent contractor has been outlined by common law principles, the Fair Labor Standards Act, and finally the decisions of some courts.

The IRS and many states have adopted common law principles to define an independent contractor. These rules focus primarily on the level of control an employer has over a service or product, meaning, whether or not the employer actually defines what is being done and how it will be accomplished.

Common law principles further define independent contractor status by method of compensation. If a person is on an employer's payroll and receives a steady paycheck, clearly that the person is an employee rather than an independent contractor, who likely receives payment in a different manner. Other considerations when identifying someone as an independent contractor may include:

If the worker supplies his or her own equipment, materials and tools