Employee or Independent Contractor?

I am often asked about the difference between an "employee" and an "independent contractor". The Internal Revenue Service (IRS) and the United States Department of Labor (DOL) set guidelines for determining the difference between an employee and an independent contractor. In certain situations, the employer could face penalties for an incorrect classification.

In general, an independent contractor has these qualities:

  • Performs work that is not necessarily integral to the company's business

  • Sets his or her own hours

  • Works independently, and decides how to complete the work without the company's input

  • Personally invests in his or her work product and is personally liable for any losses incurred

  • Uses his or her own tools and works in his or her own office space

  • Exercises independent business judgment

  • Possesses specialized skills

  • Does not receive any additional training from the company contracting with him or her

In general, in the case of an employee:

  • He or she creates a product or provides a service that the employer is in the business to provide

  • The employer sets his or her work hours

  • The employer supervises direction of the work and requires the worker to perform certain tasks under set guidelines

  • The employer invests money into the work product and is liable for any losses incurred

  • He or she uses the employer’s tools and office space

  • He or she works under the employer’s business judgment

  • He or she receives training from the employer

These are just guidelines for determining a worker’s appropriate classification, and companies should seek professional counsel to help make the proper determination.

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