There are rules governing whether employers may classify workers as employees or independent contractors. Sometimes people are hired (or contracted) as one type of worker, when their work fits the definition of the other. Here is how you can tell if your legal status matches the work you do.
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The biggest difference between an employee and an independent contractor is who is in control of the worker’s daily activities. An independent contractor has a job to finish by a specific date, but where, when, and how the job gets done is up to the contractor, not the employer. For example, if you are required to transcribe a bunch of audio tapes as an employee, you show up at your employer’s place of business at 9 in the morning, sit at the workplace provided for you, and do the job. If you are an independent contractor doing the same work, you are not told to start at 9 in the morning, but you will be told that all of the work is due by 3 in the afternoon on Friday. You may also do the work at home.
An employee may be a permanent or a temporary employee. For example, if you are hired as an employee to cover the job duties for a permanent employee who is on leave, this is perfectly legal and you are a temporary employee. Some people work as employees for temporary agencies, and companies contract with the agency for temporary workers. This is also perfectly legal. If you are covering somebody else’s job while they are away, you are most likely somebody’s employee, and should not be paid as an independent contractor.
An employee submits a time card or works according to a schedule and is compensated with a paycheck from which taxes have been paid on the employee’s behalf. An independent contractor submits an invoice for the full amount owed. An independent contractor is responsible for paying all taxes owed to the IRS.
Who Calls the Shots?
The biggest difference between employees and independent contractors is that employees are hired to do the work at a set time. Independent contractors, however, call many of the shots in terms of when they work. They agree to get a job done, then do it wherever and whenever it suits them. As long as they complete the job on time there should be no problems.
A Checklist for Determining the Difference Between an Employee and an Independent Contractor
Ask yourself the following questions if you are not sure whether your work responsibilities fit the definition of employee or independent contractor.
- When and where must you do your work? If you are required to do your work in the office, at your desk, and under your boss’s control, you are an employee.
- What tools or equipment do you use? If you are required to purchase or bring your own tools or equipment, you are most likely an independent contractor. Employers provide tools and equipment.
- How much instruction are you given? Employees are taught how to do their jobs. Independent contractors are hired to deliver an end-product.
- Are you guaranteed an hourly wage? You are an employee. If you bill for your time, you are an independent contractor.
- Do you have benefits such as sick pay? You are an employee.
- Are you a permanent worker at the place of business? An independent contractor may be on retainer, meaning that they get called when they are needed. For example, perhaps you fix computers. The company calls you when they need your help and expertise, and you may be an independent contractor. But if you are a permanent fixture in the office and come to work every day, you are more likely an employee.
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