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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. However, there are very important legal differences between the two, going way beyond job title. The major difference between an employee and an independent contractor is the level of control that the employer has over the worker. Put very simply, an employer has total control over how, where, and when the employee will perform his or her job, while the employer only has control over the end result or product that the independent contractor has been hired to complete.

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 deciding which type of worker to hire.

The following chart outlines some of the key differences between employees and independent contractors. See FindLaw's The Hiring Process section for related resources.

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).

Don't receive employment benefits from the company or client.

Work under the direction of the employer.

Work independently.

Accomplish tasks according to employer's request/instructions.

Have control over how to accomplish the assigned tasks without the employer's input.

Typically don't incur costs in performing their 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 pays a self-employment tax.

Eligible for unemployment insurance benefits after a lay-off or termination.

Ineligible for unemployment compensation benefits.

Eligible for workers' compensation benefits for workplace injuries.

Not eligible for workers' compensation benefits.

Can be terminated by the employer only for good cause and with notice (unless the employment is "at will").

Can be let go by the employer for any reason and 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 and not eligible for overtime pay.

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.

Getting Legal Help

Misclassifying an employee as an independent contractor can lead to a host of problems, including problems with the IRS. If you would like assistance in determining if you're truly hiring an independent contractor, you might want to contact a local employment lawyer for guidance.

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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