It is a simple fact that independent contractors and employees are different, and it is necessary for employers to be aware of the distinction, as it will assist them in determining who to hire and what taxes they must withhold, as well as any legal issues which may be associated with their employment.
How do Independent Contractors Differ from Employees?
Employees are responsible for performing tasks which are completely controlled by others. While some work at multiple jobs, the majority of employees have a single employer. The employer dictates the hours they work, as well as when they get vacation time. Most employers also set the wages their employees are paid. Employees may also receive on-the-job training.
Independent contractors are self-employed, and as such they have more flexibility than employees. They set their own hours and will work at their own pace. Some independent contractors will have employees of their own, and may have a separate business name. They advertise their services and will typically have multiple clients.
They are responsible for managing their own records and will maintain their own tools. They will also provide invoices for the work they complete. Some smaller firms prefer independent contractors over employees because they provide reduced labor costs, as well as a lower legal liability. They also offer more flexibility in terms of the hiring process.
Why it’s Important to Know the Difference
Misclassifying employees and independent contractors can lead to various legal problems. For instance, independent contractors who are found to meet the definition of employees must be reimbursed for the wages which they should have been paid based on the Fair Labor Standards Act, which includes things such as minimum wages or overtime.
Employers are also expected to pay back taxes on items such as income taxes, Medicare and Social Security. If there have been any injuries, the employer must also pay for worker’s compensation, as well as other benefits such as retirement or health insurance.
There is no provision within the Labor Standards Act for determining whether a worker is an employee or independent contractor. At the same time, there are a number of guidelines that should be considered. Some of these include the permanency of the work which is performed, as well as the importance of the services which are rendered.
Another factor that should be considered is the contractor’s potential for profits or losses, as well as the amount they have invested in equipment or facilities. Other things that separate independent contractors from employees are the level of initiative or judgment they have in open market competition, which is a necessary aspect of working in this capacity.
The question of whether a worker is classified as an employee or independent contractor will depend heavily on the degree of control which is maintained by the employer for the work being performed. One document that employers should read is the Equal Opportunity Employment Laws, as they provide more information on how to determine the differences between employees and contractors, and how they are defined under federal law.