Many employment issues hinge on the classification of an employee. In some cases, employers might try to claim that someone is an independent contractor instead of an employee in order to avoid having to address certain matters. Understand the difference so that you can ensure that you are classified correctly.
Control of the person
One of the big differences between an employee and an independent contractor is that companies have more control over employees than they do independent contractors. Typically, employees are told when and where to work. They are told specifics about how to do the job. Employees might also be told what to wear while they are working.
Generally, these statements don’t apply to independent contractors. An independent contractor is his or her own boss. This individual will set one’s own hours and won’t have training or much direction about work duties from the company with which he or she is contracted. In most cases, independent contractors are bound by delivery terms in the contract but that is likely the scope of the control.
Presence of benefits
Anyone who is provided with employment benefits should usually be considered an employee. It is highly unlikely that a company would provide benefits, such as health insurance and paid time off, to an independent contractor. In some cases, benefits might be provided to a non-employee when the conditions of those benefits are covered in the project contract.
Another big difference between these two classifications is that employees will receive a paycheck that has taxes taken out of it. Independent contractors will receive the entire agreed upon pay for a project. The independent contractor is responsible for paying his or her own taxes. Employees are generally paid on the employer’s schedule and might have other employment terms, such as a non-compete agreement, that are in place to govern the working relationship.
Because the IRS usually classifies workers as employees, companies might ask people who are hired as independent contractors to sign something that verifies their classification. If you are asked to sign one of these documents, make sure that you understand what it means. It could mean that you are giving up some rights of employees, which isn’t usually a big deal. However, if you are being treated as an employee, you need to ensure you are reaping the benefits of that relationship.