The demand for subcontractors is on the rise in the U.S, necessitating the need to understand subcontractor law. The sector is predicted to have expenditures of approximately $1.4 billion by 2021. The demand for subcontractors has eroded the traditional work relations between employers and employees.
With these changes, employers are getting a shield from the legal liability for offenses committed by intermediaries. Employers are increasingly engaging independent contractors to keep off the legal obligations that come with company employees.
Keep on reading to learn more!
Table of Contents
- Knowing Your Rights as a Subcontractor
- Duties and Responsibilities of a Subcontractor
- Subcontractor Law – Take Away
Knowing Your Rights as a Subcontractor
As a subcontractor, you’re responsible for paying your own taxes, and not as an employee of a company. Unfortunately, in most cases, independent contractors are incorrectly classified by employers. This misclassification has resulted in numerous lawsuits, as has been witnessed in recent cases involving FedEx, Citigroup, and Uber among others.
According to the Department of Labor (DOL) and Internal Revenue Service (IRS), employers are responsible for correctly classifying subcontractors. Different states have a set of factors they consider when categorizing employers and subcontractors. Unfortunately, the contradiction that arises from the guidelines has seen about 20% of employers misclassify employees or contractors.
Some employers may do this intentionally to reduce labor costs and avoid taxes. This is where the need to know what the subcontractor law says about your rights comes in. You need to see to it that you’re being treated fairly as stipulated by the law.
In the subcontractor law, it’s outlined that the rights of a subcontractor are as follows.
1. Right To a Contract
Without a contract, it would be impossible to establish a consultant-client relationship. Before you start any task regardless of how small it is, ensure you sign an agreement with the client. This way, you’ll establish a legal working relationship.
At the minimum, a contract should indicate that you’re working independently. It should also clearly explain the relationship between you and the client. It should also have a description of the project, and the time it’ll take to complete.
Disputes from contractual agreements arise from lack of commitment to payments and billing terms. For this reason, ensure you clearly stipulate your payment terms and keep everything recorded using relevant business technologies.
Benefits of Having a Contract
Contracts are recognizable by law and are also enforceable. If a dispute arises in the course of your work, a signed contract will act as proof of your agreement. While verbal agreements are binding, their weakness lies in the lack of inherent evidence of the deal.
A contract is evidence that you are a part-time worker and not an employee of the company hiring you. This proof is essential for your consultant status for financial and tax purposes. The contract also protects the client. Suppose a company misclassifies an employee and lists them under a contractor; the agreement holds them responsible for fines and penalties.
Contracts instill a sense of professionalism and ensure there’s a full understanding of the requirements. It protects both the consultant and the client in cases where the mutual expectations are not being met. Since many disputes arise out of miscommunication, a contract provides a chance to resolve issues based on the agreement.
2. Right To Control
Generally, a client is not supposed to control the work a subcontractor does. As such, the client can’t dictate how or when you do your job. Although these are fundamental aspects to contracting, some subcontractors may not be aware it’s their right.
If a client controls your work, the risk is that they’ll end up treating you as an employee. As a contractor or consultant, the expectations are that you know your job and are an expert in the same. The client contracts you for your expertise and therefore shouldn’t provide guidance as to what you should do.
3. Right To Work In Your Terms
As an expert and subcontractor, you have a right to work when and where you like. The only exception is when the structure of the project requires you on-site with the client. Under such circumstances, you’ll be required to provide your set of tools and equipment for the project.
The services you’ve been contracted for are some that the client may not complete with the employees. Most likely, the contract is for the completion of a project that’s not part of day-to-day operations. If by any chance you’re placed in the internal team of the company, this should serve as a red flag.
With your own terms, you shouldn’t complete the same job as the employees. If such happens, it’s likely that your working standards will be compromised. In such an instance, you have the right to terminate the contract.
4. Right to Work with Other Contractors
If the nature of the project is complex and there are technicalities involved, you can engage other contractors for specific tasks. It’s considered best practice to let the client know in advance if you foresee a need to utilize additional resources. It’s even better if this information can be captured in the agreement.
The project requirements might become too many for you to meet independently. Remember that you’re responsible for scheduling meetings with clients, running errands, and attending networking events. As a way of avoiding burnout and meet your client’s expectations, it’s recommendable to team up with other experts.
Working with other professionals will enhance partnerships for posterity. It also helps your business grow and reduces the burden of large and technical projects. However, avoid overextending yourself by taking projects that are too large for your scope.
5. Right to Manage Your Own Business
No client is supposed to interfere with how you manage your business. Likewise, you’re not entitled to any company benefits. The client won’t provide you with benefits like pension plans, insurance, sick days, or disability insurance.
You’re also responsible for your tax obligations and requirements. As a subcontractor or independent consultant, the law requires you to pay self-employment tax. The payment you get from the client isn’t taxed yet.
It’s upon you to submit tax returns, as the client will fill out a report that shows those payments. To learn more about the tax filing process, visit the Internal Revenue Service tax center.
6. Right to Fair Compensation
The Fair Labor Standards Act stipulates that an employee is entitled to a fair minimum wage. They also have a right to overtime pay. Unfortunately, the section is silent on the payment standards a subcontractor is entitled to.
In this light, subcontractors are paid on the strict basis of their contractual agreements. It’s therefore only fair that they quote a reasonable amount guided by the minimum wage payable to employees.
Duties and Responsibilities of a Subcontractor
Other components subcontractor law essential for you to understand are the civil liability and tax obligations, and agreements. While you are entitled to having all the above rights delivered to you by the client, you also have some responsibilities to meet.
1. Civility Liability
According to labor laws, employers should not be held liable for the mistakes subcontractors make. Common law and court decisions also hold a subcontractor liable for torts like the breach of contracts. Damage of property and crimes against other persons are held against the subcontractor.
Employers are not liable for abuses meted on other workers by the subcontractors. However, in some subcontractor laws have a limit to the instances where employers can deny liability. There are also initiatives that actively advocate for tight recordkeeping rules.
In some instances, there’ll be joint responsibility for violations at the workplace. This enhances the welfare of the subcontractor.
2. Tax Obligations
It’s your responsibility to withhold your tax and report your income to IRS. You can send your 1099 forms to the center to file your income tax. As a subcontractor, remember to keep track of your labor, material and all expenses.
With accurate records, IRS may allow you to write off most of the work-related expenses. Also, always file your taxes on time without missing tax deadlines.
It’s your responsibility to draw up an agreement that outlines the relationship between you and the client. This also goes for contracts between you and other parties like fellow contractors. Ensure the contract covers the rights and obligations of the parties involved.
To always be on the safe side, have an indemnity clause that specifies you’re not responsible for breaches caused by the main contractor. You’re only accountable for the consequences of your actions. Other important details are the dates the project will commence and end.
Subcontractor Law – Take Away
As a subcontractor, you’re not protected under the same law as an employee. Thankfully, subcontractor law recognizes this and adequately stipulates your rights and responsibilities. Knowing your rights will enable you to run your business without intimidation.
Working within the confines of the law, you’ll demand to be treated fairly, get fair compensation, and argue out a legal case in case a dispute arises and lands you in court. In case you find that your status as a subcontractor has a dispute, reach out to the IRS.
They’ll be able to determine your worker status to enable you to conduct your business as required by law.
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