What defines an independent contractor?

According to the Department order no. 174 from the department of labour and employment in the Philippines, the term "contractor" refers to any person or entity engaged in a legitimate contracting or subcontracting work arrangement for a specific job.

Such services are undertaken and outlined under a "Service Agreement". Hence, the definition of a contractor is as follows:

(a) The employees recruited under the contractor will perform activities directly related to the contractor's primary business operation instead of the company (or client) that hires the contractor.

(b) The contractor does not exercise the right to control the employee's work performance.

(c) The contractor acts as a distinct and independent business and will perform the job according to its method, manner, and responsibilities.

(d) The contractor has substantial capital to carry out the job by their account, method and manner, including the investment of the tools, equipment, supervision and machinery.

(e) During the work period, the contractor is free from the control and direction of the principles related to the work performance, apart from the results indicated in the service agreement.

(f) The service agreement will state the specific description of the work being carried out, including its term or duration.

(g) The service agreement will clearly state the agreed amount of the contracted job and related terms and conditions.

(h) A standard administrative fee is charged to the hiring company.

 

For instance, it is at least ten (10%) of the total contract cost in the Philippines. On the other hand, employment law protects an employee rather than an independent contractor.

Learn more about what defines an employee.