An Arkansas independent contractor agreement defines a business relationship between a client and a contractor. When initiating a professional relationship with an independent contractor, it is crucial for clients to outline the terms and conditions in a legally binding agreement.
- Worker Classification: ABC Test
- Tax Structure: Graduated-Rate Income Tax
- Definition: § 11-10-210(e)
- At-Will Employment: Yes (with exceptions)
Independent Contractor Definition
The term “independent contractor” has a specific definition under Arkansas Law. Unlike an employee, who works for an employer and is given tools and equipment by the employer, an independent contractor:
- Sets their own schedule.
- Usually provides their own tools and equipment.
- Is typically paid by the job, either upon bid submission or a negotiated flat rate.
- Does not have their taxes withheld from their services or pay.
- Provides their own worker’s compensation plan and insurance.
- Has their own place of business.
- Uses the name or logo of their own business.
- May work for more than one client or company at the same time.
- Is not subject to non-competition rules.
Worker Classification Test
The distinction between employees and independent contractors is crucial for a business owner. Generally, Social Security and Medicare taxes, along with unemployment insurance tax, are withheld and paid on wages for employees but not for independent contractors in Arkansas.
Per ACA § 11-10-210(e), Arkansas uses an ABC worker classification test. To obtain independent contractor status for a worker, an employer must prove that the worker:
- Has been and will continue to be free from the employer’s control and direction; and
- Performs services outside the typical course or place(s) of business for which services are performed; or
- Is engaged in an independently established occupation, trade, business, or profession of the same nature as the service they are performing.
If the employer cannot prove that the worker meets part 1 and either part 2 or 3 of the test, they must classify the worker as an employee and report and pay unemployment insurance.
Rights and Responsibilities
Arkansas law does not provide specific rights for independent contractors.
State Taxes
According to the Arkansas Income Tax Act, an “employee” is anyone subject to the Income Tax Act of 1929 who receives wages for performing services for an employer.
Meanwhile, according to ACA §26-51-902(10) and Arkansas Dep’t of Health & Human Services. v. Storey, an “employer” is anyone who does business or earns income from sources within Arkansas and controls the payment of wages to an individual for services performed. Agents and officers of people who control the payment of wages are also “employers.”
Filing for Unemployment
Independent contractors cannot file for unemployment in Arkansas. This is because independent contractors and their clients don’t pay unemployment taxes.
Other Considerations
Employers must provide employees with a Form W-2 so they can file their personal income tax with the Internal Revenue Service (IRS) [1] .
Employers who intentionally provide employees with a Form 1099 instead to avoid tax obligations may be charged and convicted of crimes, including tax evasion, insurance and mail fraud, and theft, wage, and hour violations.
Sample
Below, you can download an Arkansas independent contractor agreement in PDF or Word format:
