A South Dakota independent contractor agreement is a document that a contractor and client use to agree on the services a contractor will provide to the client. It describes the payment the contractor will receive, the scope of services the contractor will complete, and the manner in which the contractor will receive reimbursements, if applicable.
- Worker Classification: Common Law
- Tax Structure: No State Income Tax
- Definition: SD Codified L § 3-6C-1
- At-Will Employment: Yes
Independent Contractor Definition
An independent contractor is any paid worker who can satisfy both points of the independent contractor test, which is examined below. On the other hand, an employee is any paid worker who cannot or has not yet been proven to satisfy both points of the independent contractor test.
It’s important to note that in South Dakota, workers are presumed to be employees until proven otherwise, according to the independent contractor test.
Worker Classification Test
In South Dakota, the courts use common law to determine the classification of a worker as either an employee or an independent contractor. South Dakota classifies all workers as employees until they satisfy both of the following points (SD Codified L § 61-1-11):
- The worker is free from control and direction over how they perform their service, both in fact and under contract.
- The worker regularly engages in an independently established business, trade, profession, or occupation.
If an individual can prove that both of these facts apply to them, they’ll receive classification as an independent contractor.
Rights and Responsibilities
Most of today’s workers’ rights originate in the worker’s classification as an employee. Independent contractors sacrifice these rights in exchange for more freedom and flexibility. South Dakota’s independent contractors lack the following protections:
- Overtime rights
- Minimum wage rights
- Most employment benefits
- Many anti-discrimination protections
State Taxes
South Dakota does not have a state income tax. However, independent contractors within the state should be aware of the following taxes:
- Federal self-employment tax rate: 15.3%
- State income tax rate: N/A
- State corporate income tax rate: N/A
- State sales and local taxes: possible
- Industry-specific taxes: possible
Compensation for Work Injuries
Independent contractors don’t have workers’ compensation rights in South Dakota. A contractor can obtain their own workers’ compensation insurance to protect themselves in case of a work-related injury. A client may or may not require a contractor to have their own workers’ compensation insurance as part of an independent contractor agreement.
Filing for Unemployment
Because they aren’t classified as employees, independent contractors in South Dakota can’t file for unemployment.
Sample
Review our South Dakota independent contractor agreement and download it as a PDF or Word file:
