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With so much in recent news about the fine line between employee and independent contractor, we thought we’d take a moment to break down the two designations.
There are several factors that determine whether or not the person performing the work is an employee or an independent contractor. They are, in large part, decided by how much control the employer exerts over the worker and the work involved.
For example, in a very simplified sense, the IRS considers a worker to be an employee if the company controls what work will be done, provides training and direction on how it is to be done, states when it is due, and who completes the job. It considers a worker to be an independent contractor if the company relies on his or her expertise, methods, timeline, and staffing.
Another important determining factor is whether or not the worker has a financial stake in the end result. On one hand, an employee can be rewarded, promoted, disciplined, or fired based on job performance (all the while getting paid). On the other, an independent contractor would suffer a loss if he or she performed more tasks than the original scope, but at the original price or if the company is dissatisfied with performance.
Worker Classification: Employees
Worker Classification: Independent Contractors
Employment status has important implications for taxes, liability, compensation, and benefits. The above divisions can help you determine where your workers fall, and how best to organize your efforts.