1099 or Employee, How Do You Decide?

May 15, 2017

Maybe you've never thought about the difference between being an employee and being an independent contractor (also called a "consultant"). In many respects, there seems to be no difference at all. Often, independent contractors and employees work side by side at the same company, even doing the same or similar work.

 

But there are very important legal differences between being a contractor and an employee. Make sure you are classifying properly and get your Independent Contractor or Employee Checklist now from Curated Compliance.

 

These differences go beyond job title. In fact, sometimes the job title doesn't match the legal classification-and sometimes job titles are changed to get around legal obligations. Employment status affects many issues such as employment benefits, tax implications, and liability. It is important to know the key differences, below you will find guidelines for determining whether workers are independent contractors or employees: 

 

EMPLOYEE

  • Usually works for only one employer

  • Works the hours set by the employer

  • Usually works at the employer's place of business 

  • Often receives employment benefits, such as health and disability insurance. 

  • Works under the control and direction of the employer.

  • Accomplishes tasks in the manner the employer has requested. 

  • Tends not to incur costs or make investments in order to complete the work. 

  • Has a general education and experience background, and receives special training from the employer in order to do the job better. 

  • Receives net salary after employer has withheld income tax, Social Security and Medicare tax under the Federal Insurance Contributions Act (FICA). 

  • Will likely be eligible to receive unemployment compensation after lay off or termination. 

  • Will received worker's compensation benefits for any workplace injury. 

  • Generally (unless employment is "at will") can be terminated by the employer only for good cause and with notice. 

  • Is covered by federal and state wage and hour laws such as minimum wage and overtime rules. 

  • Has the protection of workplace safety and employment anti-discrimination laws. 

  • May be entitled to join or form a union. 

INDEPENDENT CONTRACTOR

  • Generally provides consulting services to more than one company. 

  • Sets his or her own hours.

  • Works out of his or her own office or home. 

  • Does not receive employment benefits from the employer. 

  • Work relatively independently.

  • Has the authority to decide how to go about accomplishing tasks, and does so without employer's input. 

  • Incurs the costs associated with performing the job. 

  • Has acquired very specialized skills and comes to the work relationship with a specific education and experience background. 

  • Is not subject to tax or FICA withholding, but pays his or her own self-employment tax. 

  • Is not eligible for unemployment compensation benefits. 

  • Is not eligible for worker's compensation benefits. 

  • Generally (unless consulting contract is for a specified term) can be let go by the employer for any reason, at any time. 

  • Is paid according to the terms of the contract, and does not receive additional compensation for overtime hours worked. 

  • Usually is not protected by employment anti-discrimination and workplace safety laws. 

  • Is not entitled to join or form a union. 

Misclassification of workers can expose your company to potential liability, so it is important to make this determination carefully and with the assistance of counsel if needed. For more guidance on determining whether a newly hired worker is an independent contractor or an employee download our checklist now and follow the guidelines.

 

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