Independent Contractor Versus Employee

Contractor versus Employee

In other words, you can't be both an independent contractor and an employee. You can certainly be one or the other but not both at the same time.

An independent contractor generally is someone that performs work at their pace, with their tools and/or equipment, is at risk of financial loss, the work is not their sole source of income over an extensive time frame, to achieve a certain outcome specified by another person or business. Now this is a general statement but it stresses the point that they are not being controlled, with the exception of the output and specific deadline, by the business that they have agreed to perform work for.

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What are Advantages of a Company Using an Independent Contractor

Now you could be an employee for an independent contractor but can't be an independent contractor employee!

There are some definite advantages of having someone classified by the Fair Labor Standards Act as an independent contractor versus employee, but be very careful rushing into classifying them as such.

The advantages are that you do not pay payroll taxes, social security taxes, pay worker's compensation, pay overtime, offer company benefits, etc., to an independent contractor.

However, if you have classified someone as an independent contractor for the last ten years and it is determined that in fact they should have been considered an employee the entire time you most likely will become responsible to pay all required back taxes, any back overtime earned, and possibly have to offer any benefits retroactively. This entire process could get real ugly real fast.

So, my advice would be to make sure you classify someone correctly from the beginning.

Let's go through an example of the difference.

You contact an electrician to perform some electrical work at your facility. The work involves completely rewiring an entire portion of the facility which could take as much as three full months. You explain what you want to the electrician and they perform the work based on the local codes at their pace for a specific fee agreed upon by you and them. This would be considered an independent contractor, not an independent contractor employee.

Furthermore, if you contacted that same electrician and told them that you would pay them $40.00 per hour, they could use your tools and equipment, they needed to report at 7:30 am, needed to wear your uniforms, and must take lunch and breaks on your schedule and not theirs, and they would be considered an employee.

One you are controlling and the other you are not. There are many more aspects to making a determination but again the term independent contractor employee is an oxymoron, i.e., a contradiction in terms.

Please also understand that this is not to be considered legal advice and that you should seek a legal professional for that. I do believe the information above to be accurate though using my experience as Human Resources Professional.

May God Bless You!


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