Now more than ever before, people are working from home or remotely as independent contractors. With the growing gig economy, some companies prefer hiring independent contractors over regular employees. This is because employers don’t have to pay minimum wage, employee benefits, payroll taxes, PTO and a host of other items.
From an outside perspective, there may seem to be little difference between an employee and an independent contractor. Independent contractors and employees often work side by side at the same company, even doing the same or similar work. However, there are very important legal differences between independent contractors and employees. It’s important to know that these differences go beyond the job title. Below, we discuss nine key differences between an employee and an independent contractor.
What Is an Independent Contractor?
According to the IRS, an independent contractor is someone who is self-employed. This means that those who pay them for their services do not control the way they perform their jobs, only the results of the job. The contractor decides how to achieve the end result, not an employer. Additionally, all earnings for self-employed workers are subject to Self-Employment Tax.
When working with or as an independent contractor, it is always a good idea to have a formal contract written. This contract should outline duties, how much the job will pay, when payment is due, and emphasize that the job is being performed by an independent contractor, not an employee. Additionally, it’s important to outline the client-independent contractor relationship. If all tests are not met to be an independent contractor, state or federal agencies might view the independent contractor as an employee. That would result not only in requiring the “employee” be made whole but also in penalties and potentially liquidated damages. Lastly, it is easier to argue that a person is an independent contractor if there is a specific project, they work on that is typically not one carried out by the business. Therefore, make sure to outline the project description, allotted time for completion, billing, payment methods, and contract termination requirements. Contracts should always include the right of independent contractors to work for more than one client at a time.
One of the key tests of determining whether someone is an independent contractor, or an employee is whether the level of control exercised. To be an independent contractor, they must have the freedom to decide where, when, and how a project will be completed. If the client exercises too much control the independent contractor status could be lost.
Unlike employees, whose hours are set by an employer, independent contractors should be able to decide the days and hours they work. Furthermore, independent contractors, unless the project calls for something specific, have a right to decide where they work, they have the freedom to choose.
As for advertising services, contractors have a right to market their services. Common marketing techniques include, business cards, brochures, or even handouts.
Employees receive payment based on a set schedule. Independent contractors, however, are paid based upon the negotiated contract between the independent contractor and the client. The contract should specify when and how the independent contractor will receive payment.
Contractors or Subcontractors
At times, independent contractors may decide to sign with other contractors to complete projects. This is similar to general contractors hiring subcontractors.
Independent Contractors Manage Their Own Business
As a self-employed individual, independent contractors provide their own benefits. Clients are not responsible for benefits, health insurance, or other things that typical employees receive from their employers.
At Peterpaul Law, LLP, our experienced and knowledgeable labor and employment lawyers are here to assist with issues involving whether an individual is an independent contractor or an employee alike. No matter what issues you are facing, we are here to help you every step of the way. Contact us today.