What is the difference between an independent contractor and a third-party consultant?

UPDATED: Oct 1, 2022

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What is the difference between an independent contractor and a third-party consultant?

I currently work as a contractor with a company marketing consulting.

Unfortunately, they can’t offer me a full-time position and said that they can’t

keep me as a contractor for a long time since after a certain period of time a

contractor is entitled to the benefits as an employee. I would like to keep

working with them and was thinking whether changing my business status can

solve this issue (e.g. registering DBA, getting EIN and a business bank account). So I can act as a third-party consultant one-person agency that they can hire without any time restrictions.

Asked on March 28, 2018 under Employment Labor Law, California


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

Legally, there is no difference between an independent contractor and a third-party consultant: an independent contractor is a third-party consultant. What their concern arises from is the fact that the law disfavors having "independent contractors" who fundamentally work like, are managed as, etc. employees: the law doesn't want employers to circumvent their obligatations by simply calling employees "contractors." Therefore, if someone works in essentially an employee-like capacity (employer manages or supervises them; employer sets hours; they work largely or entirely onsite or at another employer-determined location; etc.) they are, and must be compensated as, an employee.
If someone is brought on for a modest amount of time, it's easy to get away with treating them as a contractor: there is a pragmatic understanding that, especially in today's employment market, companies bring on extra help or expertise they need for defined projects or short periods of time without adding headcount. But if you keep someone on too long, you have to make them employee or else face potential penalties for "misclassifying" them.
To be a non-employee long-term, you need to not just set yourself up as a separate, independent business (an LLC, by the way, is better for this purpose than a DBA), but you also need to work on a more-independent basis. That is, you should set your own hours, as long as you get the work done by the specified deadlines; should be able to largely work remotely or offsite; and while the employer provides guidance as to what they want and evaluates the services or end product you provide, does not manage or supervise how you do the job. There has to be a substantial amount of independence in how you work, and, of course, not all jobs lend themselves to that.
Bear in mind that at the end of the day, it's up to the employer who to hire as either employee or contractor: while the above are general guidelines, it's up to this employer whether to give you the opportunity to keep working with them, and under what circumstances. Ask them whether there is some arrangement under which you can still work for them as a consultant; offer and be prepared to set up your own LLC and provide your own equipment/software (another thing that is looked at: independent contractors and consultants provide their own equipment; they don't use the employer's for the most part). There may or may not be some way they will still be willing to work with you, but you need to ask them what will satisfy them--and then see if that also works for you. Good luck.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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