The difference between employees & independent contractors

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 independent 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 may 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. Without proper classification, you can easily find yourself in a lawsuit that could 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 may consider a specific work relationship with a freelancer or entrepreneur as an independent contractor; however, if the IRS classifies it otherwise, you may be penalized 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 independent contractor? We can provide you the guidance and expertise you require to better identify your workers and to outline your liabilities towards them.

Call us at (818) 845-5584 or email us at info@executivehrconsulting.com for reliable professional advice.