Employee v. Independent Contractor – What You Need To Know
What is the difference between an employee and an independent contractor? This is an important question and one that business owners and workers must reckon with. Oftentimes, employers will attempt to classify a new hire as an “independent contractor.” This is done to limit exposure under a given state’s worker’s compensation act. Also, if a hire is considered an employee, employees are mandated to withhold income taxes and pay Social Security, Medicare taxes, and unemployment tax on wages. Employers are under no such obligation to independent contractors.
This is an issue that raises a number of questions and attempting to answer them is not exactly straightforward. In fact, there are many factors that go into determining how to most effectively address this situation. When courts have weighed in on the “employee versus independent contractor” dynamic, some common factors have become apparent.
Control and Relationships – What They Mean And How They Affect You
It’s important to note that each jurisdiction has its own statutes and regulations and if you have specific, detailed questions you should refer to a state’s statutes and rules that focus on employment. Regardless, the most common element that all courts look for in these relationships is the right of “control” as to the means and manner of the job.
The IRS offers two key points to clarify how to understand the dynamics that define an employee compared to an independent contractor.
As we said, the first is control. If the business controls what a person does and then directs how it is done, that is considered a type of behavioral control. Financial control is also a consideration if the business dictates particular aspects of the tasks. That includes
- Level of instruction
- Amount of training
- Degree of business integration
- Method of payment
- The furnishing of work tools and other materials
- Ultimate control over the work environment and where work is completed
- The right of discharge
While this list is by no means exhaustive, it should provide all parties with a firm understanding of the factors which go into an independent contractor/employee relationship determination.
A second factor is the relationship between the two parties and any contractual obligation or benefits associated with the employment. The factors, for the type of relationship between two parties, generally fall into the categories of:
- Written contracts
- Employee benefits
- Services provided
Again, this is not a definitive list, but it should offer some clarity in terms of an established relationship between an employee or independent contractor and their employer.
If you have any questions about your status as an employee or independent contractor, please contact our team today.
The law firm of Barkan Meizlish DeRose Cox, LLP is over sixty years old, with a national practice, focused on wage and hour/overtime litigation, Ohio workers’ compensation, Social Security Disability, and personal injury/medical malpractice. Our law firm and individual law firm members appear on lists of the best law firms and attorneys in the nation.