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What’s The Difference Between An Employee and An Independent Contractor

What’s The Difference Between An Employee and An Independent Contractor

By Michal Ortner

There are a few things to consider when hiring an employee verses an independent contractor. In the ever-shifting world of employment, laws are somewhat fluid when it comes to what defines a person as an employee and what rights they can demand on those who choose to employ them. Businesses, big and small, can benefit from an independent contractor and some workers prefer this type of relationship.

A business owner can avoid payroll taxes and the hassle of providing benefits or overtime if their workers fall under independent contractor. This keeps the independent contractor from having a deduction from each individual paycheck, though they will be responsible for the taxes on their own time. Other benefits for the worker are flexible hours and tax deductible work-related expenses.

It is important to correctly classify a worker or a business can face serious consequences from the IRS, including penalties and back taxes. Though there is a fine line between the two, we can see some defining traits that help differentiate an employee and an independent contractor.

The biggest key factor is the aspect of control over workload. An independent contractor has control over the management of their work schedule, the way they do the work, and ultimately how the process is completed. They also regulate the relationship with the business and also contribute financially by using their own supplies.

An employee arrives at an indicated time and is completely directed and “controlled” by their employer. They typically have set hours, a more permanent relationship with the employer, and utilize the equipment that is on site.

Some small business owners might consider hiring an attorney to help determine the legal differences so they do not find themselves in a bind and unable to recover from a mistake. If you are considering the differences in your employees, here are a few points to keep in mind.

Employees

1. Come to your work place
2. Work your hours
3. Follow your instructions
4. Use your supplies
5. Have a steady paycheck despite performance
6. Have a given schedule that is hourly or monthly
7. Can be terminated or resign any time

Independent Contractors

1. Are business people on their own time
2. Have their own work schedule
3. Have their own routine and task management
4. Can gain a profit or lose money
5. Work for a variety of clients, if desired
6. Come and go as needed
7. Termination and resignation take place based on an agreement

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