Employees versus independent contractors. Sometimes it's difficult to know what camp you fall into as a worker. But when you consider health benefits, compensation and tax purposes, knowing the differences between the two is an absolute necessity. But what exactly are the differences between employee status and being an independent contractor? Our salary expert, Jack Chapman, has your answers.
When am I considered an employee and when am I an independent contractor?
You’re an independent contractor when you have services you sell to a company. The biggest difference concerns whether the employer withholds income taxes from your income.
A plumber or copier salesman doing work for a company fixing pipes or replacing the old Xerox is not an employee. But a retail store manager who has to do his job in the store every day is an employee, and not an independent contractor. In those cases the status is clear. But what about the temporary consultant?
How about a computer internet marketing professional? S/he works independently, sometimes from home, and does a series of projects that a company asks for, and doesn't have time to work with more than one company. Is s/he an employee or an independent contractor?
The key is to determine exactly how independent the person really is and the degree of control and independence within his/her job. Facts that provide evidence of this fall into three categories:
1) Behavioral: Does the company control or have the right to control what the worker does and how the worker does his/her job? If so, it’s likely employee.
2) Financial: Are the business aspects of the worker’s job controlled by the payer? (These include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
3) Type of Relationship: Are there written contracts or employee-type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Sometimes companies will initially hire you as an independent contractor for a trial period, then make you an employee with benefits if you pass muster. But don't mess with the IRS. While it is the employer's responsibility to determine the tax stats, you don't want to collude with anything that the IRS doesn't approve.
All the best,
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