Employee or Independent Contractor? That is the Question!
- On 5 August 2016
- Posted by Chantal Mariotti
Understand the difference between employees and independent contractors. An independent contractor is someone who is independently in business for themselves. The employer does not control the worker but only controls the end results of the work that the independent contractor has been retained to do. For instance, if you retain an independent contractor to paint the office walls, then you cannot dictate how the worker works as long as you get the desired end results in a timely manner. You cannot comment or control the individual contractor’s method of working, unless of course it compromises or intersects with your business. Payroll taxes are not withheld from independent contractors.
Just because you call someone an independent contractor doesn’t mean they are one. Independent contractors are also sometimes called freelancers, consultants, self-employed or even business owners or entrepreneurs. Employers benefit from independent contractors due to:
- No payroll taxes
- No pension, retirement, vacation or other fringe benefits
- No liability
- No income tax withholding
Incorrectly classifying someone can result in fines and back payroll taxes. Independent contractors offer a number of benefits for the employers; however, it is very important that the individual is properly classified as either an employee or an independent contractor. There are a number of factors that determine whether or not the individual is an independent contractor or not, such as the degree of control the employer has over the individual. Improper classification of individuals can result in violations of employment law and can cost you a lot more than you had anticipated.
Consider carefully whether an individual is truly an independent contractor. Make sure you properly classify the relationship with your workers and do proper research on whether or not a certain work relationship is classified as an employee or an independent contractor. You can consider a specific work relationship with a freelancer or entrepreneur as an independent contractor; however, if the IRS classifies it otherwise, you could be penalized with heavy fines for failure to withhold the proper payroll taxes.
Contact Executive HR Consulting Group for guidance. Having a hard time determining whether an individual is an employee or individual contractor? We can provide you the guidance and expertise you need to better identify your workers and to outline your potential liabilities towards them.