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Hiring Independent Contractors vs Employees

Independent contractors and employees often work side by side at the same company, even doing the same or similar work. But there are very important legal differences between the two, going way beyond job title. Employers looking to save as much money as possible sometimes try to get around legal and financial obligations to workers who should be classified as employees by classifying them as contractors, but even an honest mistake can have serious consequences for small business owners. Employment status affects employment benefits, tax implications, liability and other issues. Any employer looking to work with independent contractors should know some of the key differences between the two classifications before signing off.

EMPLOYEES
INDEPENDENT CONTRACTORS
Typically work for just one employer.Often provide consulting services to more than one company or client.
Work during hours established by the employer.Set their own hours.
Usually work at the employer's place of business.Often work out of their own home or office.
May receive employment benefits (i.e. vacation, health insurance).Do not receive employment benefits from client/employer.
Work under the direction of the employer.Work independently.
Accomplish tasks according to employer's request.Decide how to go about accomplishing tasks without the employer's input.
Typically do not incur costs in his or her work duties.Incur the costs of performing the job.
Have a general education and experience background, and receive special training from the employer.Have specialized skills and come to the relationship with a specific education and experience background.
Receive net salary after income tax, Social Security and Medicare tax are withheld (FICA).Not subject to tax or FICA withholding, but pay self-employment tax.
Eligible for unemployment insurance benefits after lay-off or termination.Ineligible for unemployment compensation benefits.
Eligible for worker's compensation benefits for workplace injuries.Not eligible for worker's compensation benefits.
Can be terminated by the employer only for good cause and with notice (unless employment is "at will").Can be let go by the employer for any reason, at any time (unless the contract is for a specified term).
Covered by state and federal wage and hour laws, including minimum wage and overtime rules.Paid according to the terms of the contract; do not receive additional compensation for overtime.
Protected by workplace safety and employment anti-discrimination laws.Usually not protected by employment anti-discrimination and workplace safety laws.
May join or form a union.Not entitled to join or form a union.
Next Steps
Contact a qualified business attorney to help you
prevent and address human resources problems.
(e.g., Chicago, IL or 60611)

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