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GLOSSARY

Contingent
Workforce Glossary

One solution to source, engage and manage all of your contractors & suppliers.

Independent Contractor

An independent contractor is a self-employed individual who offers their services to clients on a contractual basis. Unlike traditional employees, independent contractors have the freedom to set their schedules, determine their work processes, and often work for multiple clients simultaneously.

Key characteristics of an independent contractor

Control and autonomy

Independent contractors operate independently, meaning they decide how, when, and where to complete their work. Think of them as captains of their own ships, steering their careers in their chosen direction. This level of control allows them to optimise their work processes and pursue projects aligned with their expertise and interests. For businesses, this autonomy can translate to higher efficiency and innovative solutions, as contractors bring their unique approaches to problem-solving.

Payment structure and tax obligations

Contractors typically charge per project, hour, or milestone. This payment flexibility allows businesses to manage costs based on project scope. However, independent contractors bear full responsibility for filing their taxes, including self-employment tax, which covers Social Security. Unlike employees, they don’t have taxes automatically withheld. Contractors must also make quarterly estimated tax payments to avoid penalties.

Tools and equipment ownership

Typically, contractors provide their own tools, equipment, and software. This independence reduces overhead costs for businesses while enabling contractors to maintain full control over their workflows. However, it also means contractors must invest in maintaining and upgrading their tools, which can be a significant upfront expense.

Differences between independent contractors and employees

Control over work schedule

Employees often adhere to fixed schedules and follow specific instructions from their employers. In contrast, independent contractors enjoy the freedom to work at their convenience as long as they meet deadlines. This flexibility allows contractors to balance multiple projects and even personal commitments, making them highly adaptable to varying client needs.

Tax responsibilities

Employees have taxes withheld by their employer, simplifying their tax obligations. On the other hand, contractors must independently handle their tax responsibilities, including income tax and self-employment tax. This difference highlights the need for contractors to be proactive in financial planning and record-keeping.

Benefits and protections

Independent contractors typically don’t receive employee benefits like health insurance, retirement plans, or paid leave. While this offers businesses cost savings, it places a greater burden on contractors to manage their benefits and financial safety nets. For contractors, understanding and securing private insurance and retirement plans is essential for long-term stability.

Advantages of hiring independent contractors

Cost efficiency

Businesses save on overhead costs like benefits, office space, and equipment when hiring contractors. It’s a win-win for short-term projects, allowing companies to allocate resources efficiently without the long-term financial commitment associated with full-time employees. Additionally, contractors often work remotely, further reducing operational expenses.

Specialised expertise

Need a one-off project done by an expert? Contractors bring niche skills that may not be available in-house. For example, a business may hire a cybersecurity specialist for a system audit or a content strategist for a marketing campaign. This targeted expertise ensures high-quality outcomes tailored to specific business goals.

Flexibility and scalability

Contractors allow businesses to scale up or down based on workload, providing agility without the long-term commitment. During peak periods, companies can onboard contractors to handle the increased demand, then reduce their workforce as projects conclude. This flexibility is especially valuable for startups and small businesses.

Common industries that use independent contractors

Independent contractors are in high demand across a variety of industries, offering businesses flexibility, specialised skills, and the ability to scale quickly. Below are some key industries that frequently rely on contractors, along with emerging fields that are seeing significant growth.

1. Creative industries (design, writing)
Freelance writers, graphic designers, video editors, and other creative professionals often thrive as independent contractors. These industries rely on contractors for their creativity, adaptability, and ability to meet tight deadlines. Contractors are hired for specific projects such as producing marketing materials, creating visual content, or developing multimedia strategies.

Among the top contracting jobs in Australia, for example, are creative roles such as content writers and social media managers. These contractors are sought after for their ability to generate content that resonates with audiences and drives engagement. The flexibility of hiring contractors allows businesses to bring in specialised talent for short-term projects without the need for a long-term commitment.

2. Technology and IT sectors
The technology and IT sectors are rapidly expanding and increasingly rely on independent contractors to meet the demand for specialised skills. Tech firms often hire independent developers, data analysts, cybersecurity specialists, and app developers for specific projects or to address technological challenges.

In the Philippines, for example, we’ve seen a whopping 215% increase in our contractor population for tech roles. This shows a growing demand for specialised skills. Contractors in the tech sector offer businesses access to cutting-edge expertise, enabling companies to stay competitive in a fast-evolving field. Key roles in this sector include software developers, system architects, cloud engineers, and cybersecurity consultants.

3. Renewable energy
An emerging industry that has seen increasing demand for independent contractors is the renewable energy sector. As businesses and governments push for more sustainable energy sources, the demand for contractors in solar energy, wind energy, battery storage, and other green technologies continues to grow. Contractors in this sector often have specialised knowledge and skills in designing, installing, and maintaining renewable energy systems.

Examples of contractor roles in the renewable energy sector include solar panel installers, wind turbine technicians, energy auditors, and sustainability consultants.

4. Healthcare and medical fields
While not traditionally associated with independent contracting, the healthcare industry is increasingly turning to independent contractors in roles such as nurses, medical scribes, telemedicine providers, and medical transcriptionists. Contractors can fill temporary gaps in staffing, offer specialised expertise for specific treatments or services, or assist with administrative tasks like medical documentation and coding.

For example, telemedicine has led to a rise in independent contractors providing remote healthcare services, offering consultations, prescriptions, and follow-up care without the need for in-person visits. Travel nurses and medical professionals can also work on short-term contracts at hospitals and clinics that need extra support during busy seasons or health crises.

5. Finance and accounting
Independent contractors are in demand in the finance and accounting industries for roles such as tax preparers, auditors, bookkeepers, and financial analysts. These contractors provide businesses with specialised expertise during busy periods, like tax season, or help with ongoing financial operations, such as budgeting or managing accounts.

For instance, businesses may hire independent tax consultants to ensure compliance with changing tax laws or an accounting firm to manage end-of-year reporting. Contractors in this field often work on a project basis, providing businesses with high-level expertise without the long-term commitment of full-time hires.

Hiring independent contractors offers businesses flexibility and cost savings, but it also comes with significant legal and tax considerations. Employers must ensure compliance with local labour laws, tax regulations, and contractual obligations to avoid financial penalties and legal disputes. Below are key aspects that employers should focus on when engaging independent contractors:

Classification and compliance

One of the most critical legal considerations is properly classifying workers as independent contractors rather than employees. Misclassification can lead to penalties, back taxes, and legal liabilities.

For example, in the U.S., the IRS uses factors like the degree of control, financial independence, and the nature of the relationship to determine the correct classification. Misclassified workers may result in the employer owing back taxes, penalties, and missed employee benefits.

On the other hand, in the UK, misclassification is governed by IR35, which determines if a contractor is essentially an employee for tax purposes. If found inside IR35, the employer must deduct income tax and National Insurance contributions. Misclassification under IR35 can lead to fines up to 100% of unpaid taxes, plus interest.

To avoid costly mistakes, businesses should review tax authority criteria and consider partnering with legal or compliance experts, such as CXC, to ensure accurate worker classification

Filing and reporting requirements

Employers must adhere to tax reporting requirements when hiring independent contractors. For example, in the U.S., businesses are required to file a Form 1099-NEC for contractors earning $600 or more in a year. Accurate record-keeping and timely reporting help maintain compliance and avoid IRS penalties. Employers should also clarify whether contractors are responsible for their own tax payments, including income tax and self-employment tax, to set clear expectations.

Contracts and agreements

A clear, well-drafted contract is essential when engaging independent contractors. Contracts should outline the scope of work, payment terms, deadlines, and confidentiality clauses. Including indemnity clauses and specifying intellectual property rights can protect businesses from potential disputes. Contracts also serve as evidence of the independent nature of the relationship, which can be crucial in case of audits or legal challenges.

Liability and insurance

Employers may face legal risks if a contractor’s actions lead to damages or losses. To mitigate these risks, businesses should require contractors to carry liability insurance. This protects both parties in case of legal claims related to the contractor’s work. Additionally, employers should verify that contractors comply with any industry-specific licensing or insurance requirements.

Intellectual property (IP) ownership

When contractors create original content, software, or designs, it’s essential to address intellectual property rights in the contract. Without a clear agreement, contractors may retain ownership of the work they produce. Employers should include clauses that transfer IP rights to the company upon completion of the project, ensuring full control over the deliverables.

Termination and dispute resolution

While independent contractors operate on a project basis, it’s important to include clear termination clauses in their contracts. These clauses should specify the conditions under which the contract can be terminated and outline dispute resolution procedures. Mediation and arbitration clauses can help resolve conflicts more efficiently, avoiding lengthy and costly litigation.

Global considerations for cross-border contractors

In today’s global economy, businesses frequently hire independent contractors from other countries. Cross-border contracting refers to the practice of hiring or working with independent contractors who are located in different countries or regions. This involves managing contractors across international borders, and it often requires navigating various legal, tax, and regulatory requirements that differ from one country to another.

Related: Best practices for contingent workforce management: Key strategies for cross border compliance and global flexibility

Hiring cross-border contractors offers businesses access to global talent, but it introduces challenges like legal compliance, tax complexities, currency exchange, and cultural differences. Each country has its own labour laws and tax regulations, requiring businesses to navigate varying rules for employment classification, tax withholding, and benefits. Paying contractors across borders also involves dealing with exchange rates and international banking fees, while communication across time zones and cultures can lead to delays and misunderstandings.

How to leverage an employer of record (EoR) to hire cross-border contractors

To overcome these challenges, businesses can partner with a reliable EoR provider, such as CXC. The EoR manages legal compliance, ensuring contractors are classified according to local labour laws, and handles tax management to prevent double taxation and ensure correct withholding. They simplify currency exchange and payment handling, ensuring contractors are paid on time and in their preferred currency. Moreover, EoR also takes care of HR management, onboarding, and benefits, allowing companies to focus on other important aspects of the business. By assuming legal responsibility, the EoR helps mitigate risks, ensuring compliance and reducing potential liabilities.

How we can help?


Finding and hiring talent can be challenging, costly, and time-consuming. However, with CXC as your flexible staffing partner, this doesn’t have to be the case.

With more than 30 years of experience in the contingent workforce space, our team of experts is here to guide you every step of the recruitment process. Whether you need temporary staffing or remote workers, we have tailored workforce solutions that can fit your specific needs.

This way, you don’t have to worry about compliance and administrative burden, and you can focus on what matters most: growing your business.

CXC Global