Are You an Employee or an Independent Contractor?

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Given the changes in the job market and the decrease in the number of employers hiring full time workers, it's important to know what your rights are if a company offers you a position as an independent contractor rather than hiring you as an employee.

Are You an Employee or an Independent Contractor?

If you're an independent contractor you are working for yourself and the company is your client. You are responsible for paying your own employment taxes and you are not entitled to company provided or government mandated employee benefits.

For example, under most circumstances contractors aren't eligible for unemployment benefits.

When You're an Employee

A worker is considered an employee if the employer controls what work will be done and how it will be done. What is important is that the company has the right to control and manage the details of how and when the work is performed.

Employees are on the company payroll, and the employer withholds federal and state taxes, Social Security, and Medicare. Employees are provided with unemployment and workers' compensation insurance. Employees may be offered benefits like paid sick leave, vacation, health insurance, and 401(k) or other retirement plan participation.

More: What is an Employee

When You're an Independent Contractor

The general rule that determines whether someone is an employee or an independent contractor is that an individual is an independent contractor if they decide how the work will be done.

Independent contractors aren't told by the company what to do and how to do it. What is important is the end result and how it's reached is up to the contractor.

Independent contractors typically set their own hours and are paid on a freelance basis, either a flat rate or per job rate. The duration of their work and the details of their pay is determined by a contract signed before the period of work begins.

Independent contractors are responsible for paying their own taxes to the IRS and to their state tax department. Independent contractors are not entitled to benefits, even those mandated by law like unemployment and worker's compensation, because they are not employees of a company.

Independent contractors are responsible for paying their own taxes to the IRS and to their state tax department. Generally, employers will not withhold the taxes of independent contractors. Independent contractors are not entitled to benefits, even those mandated by law like unemployment and worker's compensation, because they are not employees of a company.

IRS Employee or Independent Contractor Rules:

  • Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  • Financial: Are the business aspects of the worker's job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  • Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed in a key aspect of the business?

    Read More: What to Do When a Client Treats You Like an Employee | The Differences Between Being Employed and Self-Employed