Employee versus independent contractor! It’s a critical question that can cost you thousands if your wrong!
Of course, there are advantages to both depending on your perspective. The IRS definitely will point out to you whether you have categorized them correctly or not.
Without trying to over simplify it too much the most important question to ask is whether you control someone’s work or not!
If I tell you I want a porch built on my house and provide you with an outline of what I want the finished product to look like and then pay you when it is finish the person building it would be considered an independent contractor versus an employee.
On the other hand if you begin to control the process by hiring the person to build the porch but you determine where they must purchase the materials, how much they should pay for them along with an account to charge them to, provide the blue prints, tell them what tools to use, and when to take breaks, it becomes obvious that they are an employee versus independent contractor.
So back to my original statement in that the more you control the work the more they are probably going to be classified an employee.
Employers like the idea of classifying someone as an independent contractor to avoid many costs associated with having them as an employee. Some of those expenses are workers compensation insurance, unemployment insurance, employee taxes, the potential of employee law suits, employee benefits, etc.
My advice to any employer trying to decide if someone is an employee versus an independent contractor is to error on the side of employee or to contact a professional organization like an employment attorney to confirm.
Let’s go over a couple more examples to try and give you a better feel for the difference.
Remember having control of more than the outcome is the key.
Let’s talk about another trade that is often considered to be an independent contractor versus an employee and that is an Accountant.
Let’s say you hire a private accountant to take care of all your accounting. Once a day you provide that accountant all your daily receipts. Your expectations of that accountant are to track your expenses and report them to you on some type of regular basis. In addition, you expect them to prepare and issue all your payroll checks to your employees, pay all invoices, track all your debits and credits, and all other normal accounting functions. The Accountant works out of their own office and does work for other business as well. This would clearly be considered an independent contractor.
So, what could change the above example into an employee versus independent contractor?
The bottom line is that you shouldn’t try and complicate it. The key word is control!
Thank you for reviewing this information on an employee versus independent contractor.
Thank you and May GOD Bless You!
There are many factors that go into determining the difference between an employee versus independent contractor!
As a business owner you need to be certain you are classifying them correctly since you are responsible for paying an employee's state and federal unemployment taxes, social security taxes, and state funded workers compensation taxes. Please understand if you are wrong it can be carried all the way back to when you originally began receiving services from the individual, regardless if you did or didn't understand the law. In worst case scenarios you may be subject to paying back overtime and back benefits. Finally, we must consider that a business is also responsible for certain state and federal regulatory requirements for employees that they would not be for an independent contractor.
So, let's closely examine the differences between an
employee versus independent contractor.
The Fair Labor Standards Act defines the differences between an employee versus independent contractor, but please understand that there have been many court rulings over the years that have interrupted this so bear in mind you need to be sure.
The major difference is control over the individual.
If you are in control of the individuals starting and stopping time at work, they are most likely going to be considered an employee. As an example, if you have directed the individual to report to the job site at 7:30 am, take a break at 9:30 am, lunch at 12:00 noon, break at 2:30 pm, and may leave for the day at 4:00 pm they would be an employee.
On the other hand, if you direct an individual that work must only be performed between the hours of 7:30 am and 4:00 pm, Monday through Friday, yet you do not control when or if they come to work, they just may be an independent contractor.
If you are controlling what they do and how they do it they are most likely an employee versus independent contractor. As an example, if an individual shows up at 7:30 am and you direct them to operate a certain piece of your equipment to produce x number of widgets to your exact specifications, they would almost certainly be an employee.
On the other hand, if you specified exactly what type of widget you required yet the individual used their own equipment and produced it in any manner, they wished provided it met your specifications they may be an independent contractor.
Another difference of an employee versus independent contractor would be if the work they perform for you is a sole source of income for them. This is where it can get difficult since the work, they are performing for you may be their sole source of income at that moment in time.
As an example, you are an owner of a construction company that builds new homes and you hire an independent contract to do all the electrical work for your new homes. This may be their sole source of income for the period of time you are building new homes. Other factors will come into play to give a final determination of whether they are an employee versus independent contractor.
Now on the other hand if the work continues for years and this is the only work the electrician performs I would Jean heavily on the fact that they will probably be considered an employee.
Another factor is the type of work being performed. In the above example an electrician would be a good example of someone that could easily be considered an independent contractor because of the skill level that is required for that position. Of course, it is not the only factor but a big one. On the other hand, you would have a tough time trying to convince someone that a general laborer is an independent contractor.
So, as we conclude, the major factors in determining, employee versus independent contractor, relies heavily of a couple of major things, control and responsibility for losses.
If the business owner is controlling the individual and assumes 100% of any losses, they would be an employee. The business owner is not controlling anything other than the specifications of the final products and any losses incurred by the individual during the production phase would be their responsibility the chances are very good that they are an independent contractor.
Please understand also that nothing stated above is to be considered legal advice. It is only an opinion based on my personal experiences as a Human Resources Professional. Hopefully this will help you in determining whether someone is or is not an employee versus independent contractor. I strongly advise you to consult an attorney for your final determination since the consequences are severe if you are incorrect.
May God Bless You!