Difference Between An Employee And Independent Contractor

One of the things that employers do to avoid paying overtime is to misclassify employees an independent contractor. Williams Kherkher attorneys will tell you that by doing so, the employee misses out on some important benefits. It is important for you to know the basic difference between the two. If you have been wrongly misclassified, you have the right to lodge a complaint against your employer.

It is important to understand the difference of the two terms for taxation purposes. An independent contractor runs his own business but works for another business. An employee, on the other hand, is hired by a company to perform specific work for them. Aside from that, the IRS determines the difference based on three criteria.

Behavioral Control

An employee is one whose hours of work, tools to be used, and tasks to be performed are controlled by the employer. An independent contractor, on the other hand, sets his own time and requires little or no direction or training.

Financial Control

An employee is paid a salary and hence cannot work for others. An independent contractor, on the other hand, is not bound to the company and hence can work for other companies simultaneous with the company he is working for.

Relationship

An employee enjoys benefits which mean they have a relationship with the company they are working for. An independent contractor meanwhile has a contract but does not give the employer control over them. Likewise, an employee’s work is related to the core objective of the company.

Companies that misclassify their employees may be subject to some liability. If proven, the employer may be liable for paying the past taxes which may include FICA and Federal unemployment tax.

Aside from that, they may also be subject to fines and penalties for violating the Fair Labor Standards Act.