An Arizona independent contractor agreement is an official written document between two parties who agree to certain services and payment for those services. They enter into a business relationship for a specific project where the contractor serves the client independently without establishing an employee status.
- Worker Classification: Common Law Test
- Tax Structure: Flat Income Tax
- Definition: § 23-211(6)
- At-Will Employment: Yes (with exceptions)
Independent Contractor Definition
According to Arizona employment law (§ 23-615), employees and independent contractors are subject to different rules and expectations. Contractors have more control over their work than those who sign an employment contract, including:
- What should be done, and how to accomplish the task.
- How long it will take to achieve results.
- Payment of their own taxes.
- Ownership of tools or equipment needed to complete projects.
- Responsibility to buy their own insurance.
Worker Classification Test
In Arizona, the distinction between an independent contractor and an employee is crucial for both employers and workers. Worker classification impacts many aspects, such as tax obligations, workers’ rights, benefits, and legal protections.
The state uses the common law test to qualify as an independent contractor in Arizona. Also referred to as the right-to-control test, it is less strict than the ABC test that some states use to classify independent contractors.
Arizona considers a worker to be an independent contractor if that person is not subject to control by the individual or company that hired them, with the exception of achieving the agreed-upon result. Control includes behavioral and financial control over the worker.
Common law rules also consider the relationship between the two parties, including written contracts, if benefits are involved in the agreement, and how long the relationship will continue.
Rights and Responsibilities
While independent contractors enjoy more control over the means and method of completing their work, they may not qualify for the same benefits as employees. For example, according to Title 23. Labor § 23-902 (d), Arizona employers are not required to purchase workers’ compensation coverage for independent contractors.
However, Arizona contractors can buy worker’s compensation insurance for themselves. They are also not required to work exclusively for any one client.
State Taxes
If a worker is classified as an independent contractor by the Internal Revenue Service (IRS), thereby exempting them from federal tax withholding, Arizona will not withhold state taxes. Essentially, Arizona’s ability to withhold state taxes hinges on the IRS’s classification of a worker’s employment status.
Independent contractors are self-employed and required to report their income and pay taxes on their own. Businesses or individuals who hire a contractor do not have to withhold taxes.
Filing for Unemployment
Independent contractors in Arizona do not qualify to receive unemployment compensation [1] . In Arizona, eligibility and the payment amount for unemployment benefits are based on the worker’s wages as an employee.
Sample
Download our free independent contractor agreement template for Arizona, which includes all the essential information you need.
