Independent Contractors vs. Employees: 3 Key Things to Know
Independent contractors must pay their own state and federal taxes. An employment relationship exists when an entity hires someone to do. Will the relationship continue and is the work a key aspect of the business? Employment Laws, Covered by a number of federal and state. The employer-employee relationship under the FLSA is tested by "economic an alleged independent contractor is licensed by State/local government are not .
Advantages can include the ability to train employees, control the work process, and set employee work hours as long as they comply with wage and hour laws such as minimum wage, overtime pay, on-call pay, etc.
Disadvantages include extra costs e. Once you determine what type of hiring relationship fits the needs of your business, it is important to make sure that the line between independent contractors and employees is not blurred.
Guidelines for Classification Legal classification of a worker as an independent contractor or employee varies between jurisdictions and agencies. While a worker may be treated as a certain classification for taxes, that worker might be treated as a different classification for wage and hour purposes.
Including specific language in a hiring agreement classifying a worker as either an independent contractor or employee is often insufficient by itself. Courts of law and government agencies will look at the actual working relationship between your business and the worker.
When managing your relationship with your workers, here are three major areas to keep in mind: Control A main factor in determining whether a worker is an independent contractor or employee is the degree of control that you exercise over that worker.
Independent Contractors vs. Employees
The more control you exert over the worker, the more likely that worker will be classified as an employee. Control can take the form of directing the manner in which the work is performed, setting working hours, or dictating work location. As such, the more training you provide, the more likely that your worker will be considered an employee.
By training your worker, you are effectively directing the manner in which the work is to be performed.
Companies have tried to get creative in the past and work around this issue by making suggestions instead of directives.
Companies might send out a weekly newsletter detailing what successful independent contractors have done to be successful in their role with the hope that others will adopt similar behavior. While it may not be a bulletproof method, it certainly is a creative one.
Employees may also receive certain fringe benefits, including an allowance or reimbursement for business or travel expenses. The nature of the services performed is also key to deciding if a worker is an employee or an independent contractor. Unskilled or casual workers are usually employees because their labor is often supervised. However, even professionals such as doctors and lawyers, who have much freedom to perform their duties, may be employees if they are subject to significant control.
The courts have also found that workers may be employees and that an employment relationship may exist if the employer controls important aspects of the services performed, other than results and means.
Independent Contractor or Employee? A Guide to California Law ()
For example, a referral agency usually does not directly supervise the individuals it refers for assignments. It could be their employer, however, if it controls such important aspects of the services as: Client contact Billing and collection from clients The individual's wages Independent contractors are free from: Supervision Control in the performance of their duties.
They are in business for themselves, offering their services to the general public. Signs of independent contractor status include a person who: For example, if you give a worker a Form rather than a W-2 Form, they may still be an employee.
Persons who work for you may qualify as employees under the law, even if, for example: You have the person sign a statement claiming to be an independent contractor They waive any rights as an employee You require them to obtain a dba in order to work for you Under the Unemployment Insurance Law, an agreement by employees to waive their rights under the law is not valid.
Remember that the real distinction between the employer-employee relationship and the independent contractor relationship depends primarily on the level of supervision, direction and control exercised by the person engaging the services.
It is not defined by what the relationship is called by the participants. Separate Business Entity The law also contains a twelve-part test for determining when a sole proprietor, partnership, corporation, or other entity will be considered a separate business entity from the contractor for whom it is providing a service.