Employer Guide: Differentiating Between Independent Contractors & Employees

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Employer Guide: Differentiating Between Independent Contractors & Employees

Independent Contractors Laws

There are several laws that dictate how employers are to differentiate employees from independent contractors. However, it’s not always that easy to determine how you should classy someone. It’s vital that business owners have systems in place to ensure that employees and independent contractors are never misclassified. Doing so could have serious legal implications. Here are some tips to help you make sure that you’re classifying employees properly:

Independent Contractors Operate as a Business Entity

One very simple way to identify someone as an independent contractor is that they will operate as a business entity. An independent contractor will send you proposals for jobs, and invoices for work to be completed. Even if you typically only deal with a single person, your relationship with an independent contractor will be similar to one that you would have with another business.

Their Work is Project-Based or Time Specific

If you call on someone on an as-needed basis, and if the tasks they are required to do are very specific, then they should likely be classified as an independent contractor. Independent contractors are typically experts in their field such as IT professionals. They are typically hired to fulfill one specific purpose and will never be asked to perform duties outside of their specialty.

They Invoice You for Their Services

Unlike employees that receive a payroll check, an independent contractor will bill you for their services. You typically agree on terms ahead of time and they will be paid as any other vendor would be.

You Don’t Set Their Hours

This is one of the areas where business owners and managers often make a mistake. If you are going to hire someone as an independent contractor, they are the ones who set their work hours. There may be cases where you need to agree on an appointment time for a particular task, however, you are not able to demand that an independent contractor be available to you during specific hours. If you do, they may need to be classified as an employee.

Independent Contractors Pay Their Own Taxes

One important distinction between an employee and an independent contractor is that independent contractors are responsible for paying any taxes owed on their income. If you hire someone as an independent contractor, you should not withhold any taxes from their pay. Additionally, Independent Contractors are not eligible for any company benefits such as health insurance or retirement plans.

One of the main problems that employers run into when they hire an independent contractor is resting the urge to treat them as an employee. It’s very important that you understand that your relationship with an independent contractor will be very different than one between you and an employee. You cannot dictate when or how they work when they can take breaks, or (in most cases) what tools they use to complete the job they’ve been hired to do. Maintaining a proper relationship with your independent contractors is the best way to ensure that you don’t get penalized for misclassification of an employee.

If you have questions about employee classification, contact our office and schedule a consultation with our of our dedicated business law professionals. We can help your business stay in compliance with all laws pertaining to employees and independent contractors.