The Difference Between Employees and Independent Contractors
September 05, 2015
The legal implications of how you identify members of your workforce
Hiring an independent contractor is a great way for businesses to get the services and assistance they need without taking on the legal requirements of hiring an employee. While many people understand the general difference between employees and contractors, employers must be aware of the legal differences as well. Misclassifying an employee can become a major issue, so keep these factors in mind when hiring and always seek the help of a professional attorney if you have any questions.
Understanding What Makes an Independent Contractor
Because the US Supreme Court has said that there is no single defining factor between employees and independent contractors, it can be very difficult to find the correct classification for workers. Many variables are involved, including the nature of the business relationship, the amount of control exerted by the employer and the level of skill and training required to perform the job.
Characteristics of an Independent Contractor
There are many factors at play in legally distinguishing an independent contractor from an employee. One of the most common factors is whether or not the worker uses his or her own equipment. When an employer does not supply all the necessary tools, if the worker drives their own vehicle, uses their own gear and keeps their own records on a personal computer, then they are likely an independent contractor.
Another important component for defining a contractor is whether or not a worker can be discharged with no formal or legal process on the part of the employer. When an employee is laid off or fired, there is a legal process involved in severing the relationship. However, the relationship with contractors can end abruptly with no more than a halt in communication.
Perhaps the most obvious characteristic for independent contractors is their ability to choose when they will work. While some employees may have control over their work hours, independent contractors generally have more freedom over when they work, provided the task is completed by the agreed-upon deadline.
Other factors to consider include the amount of businesses a contractor works for. If they have multiple clients or customers and are not dependent on a single employer as their only source of income, it may be more likely that they are legally viewed as independent contractors.
There are many more characteristics of independent contractors, including separate advertising, the worker’s opportunity for higher profits and more. While none of these are the single definition, they all play a role in defining an independent contractor.
Characteristics of an Employee
In general, employees are easier to define but, like contractors, there is no single determining factor.
If the worker has a mandatory schedule that is set by the employer, they are more likely a traditional employee. Using tools, computers, uniforms and other equipment that is provided, or compensated for, by the hiring party is an indication that the person is an employee.
The degree of control over how a person works is often used to indicate that the worker is a traditional employee. When an employer controls not only the way the work is carried out (the start-to-finish process, for example), but also the way it is delivered and finalized, you are likely looking at an employee-employer relationship.
Remember, not all of these factors are the single determinant, and misclassifying employees as independent contractors can lead to massive payments to compensate for past taxes and benefits. If you need help, always seek the assistance of a qualified attorney who can ensure you accurately classify all of your employees and independent contractors.
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