Utah Contractor Practice Exam

Which of the following would qualify a person as an "independent contractor"?

1. Can make a profit or loss on work

2. Doesn't punch a time clock

3. Works at home

4. Only works on small jobs

The correct answer is: Can make a profit or loss on work

A person qualifies as an "independent contractor" primarily based on their ability to make a profit or loss on their work. This characteristic indicates that they operate as a self-employed entity rather than as an employee under a typical employer-employee relationship. Independent contractors have the freedom to control how they complete their tasks and are responsible for their own business expenses, including materials, equipment, and overhead. Being able to incur a profit or loss signifies the level of control and risk taken by the contractor. If they can generate income beyond their costs, they are functioning as a business entity, which is a key characteristic distinguishing independent contractors from traditional employees who generally receive a fixed salary without the risk of loss. While not punching a time clock, working at home, and working on small jobs are often associated with independent contractors, these factors alone do not define someone as an independent contractor. Many employees have flexible schedules and work from home, yet they are not classified as independent contractors because they do not bear the financial risks associated with profits or losses.