Employers can realize a number of economic and competitive benefits associated with the utilization of independent contractors in their workforce. This article addresses the differences between the classifications of an independent contractor vs an employee. To realize the benefits of using independent contractors, employers must work within the guidelines designed by various government and legal entities that are tasked with the enforcement of the appropriate classification of employees.

Independent Contractor Classification – What is an Independent Contractor?

An independent contractor is a worker who contracts with an employer providing services in exchange for compensation. Although each state has its unique set of criteria used to define the classification of an independent contractor, below are several defining factors generally used as a guideline to determine if someone is an independent contractor:

• has economic independence;
• does not work regularly for any single company;
• charges fees for service;
• performs only the specific service or task;
• is engaged for only the term required to complete the specific service or task;
• is in complete control of the method and manner of work;
• is responsible for paying their own income, social security, and Medicare taxes; and
• is not on the company’s payroll as an employee, and is not protected by most federal, state, or local laws intended to protect employees.

Employee Classification – What is an Employee?

On the other hand, an employee is a worker who provides services for the employer directly in exchange for a paycheck. There are several defining factors to determine if someone is an employee. Typically, an employee:

• is economically dependent on the employer;
• is employed for a continuous period of time;
• is subject to significant oversight by a company;
• does not have complete control of the method and manner of work;
• although has a position title, generally required to perform whatever task the company requires;
• has a portion of their social security and Medicare taxes withheld by their employer;
• is paid wages and is eligible for company-sponsored benefits; and
• is protected by applicable federal, state, and local employment laws.

State Specific Criteria

The determining factors provided above for the independent contractor vs employee classifications are more guidelines and do not provide an exact answer. Each state has its own set of unique rules when evaluating if the relationship between a worker and a company is classified as an employee or as an independent contractor.

If your company intends to hire help from contractors but is unsure if the manner and type of work being conducted by the workers will resemble an independent contractor relationship or an employment relationship, contact us for a complimentary consultation.

Employment Agreement vs Independent Contractor Agreement

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