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Do You Know the Difference Between Employees and Independent Contractors?

Today, independent contractors account for an estimated one in ten workers. When you’re running a small business, understanding the difference between an employee and an independent contractor is crucial. Misclassifying one as the other can result in serious legal consequences.

Below is an overview of the main differences between employees and independent contractors. We also explain how a business law firm can help you put together a classification process for hiring and managing your workforce.

What Is an Employee?

You hire an employee to fulfill a defined role and perform certain tasks. They work regular hours and receive a paycheck with state and federal tax deductions, such as income tax, Social Security and Medicare taxes, and any deductions for benefits your company offers. Employees are generally protected by workplace discrimination laws and may be entitled to medical and other benefits. As their employer, you have control over what they do for your business as well as where, when, and how they do it.

What Is an Independent Contractor?

Independent contractors are responsible for providing you with a certain result, but they control how that result is achieved. They use their own tools, establish their work hours, and invoice you for deliverables. In many cases, you pay them by the project, although some independent contractors will charge an hourly rate. Unlike employees, they are not protected by discrimination laws and are not eligible for overtime, medical coverage, or unemployment benefits.

If you have classified one of your workers as an independent contractor but the following conditions apply to the work arrangement,  he or she might actually be an employee under the law.

  • They provide core business services. Contractors shouldn’t be an integral part of your business. If you hire a contractor to build a website for your small plumbing business, it’s clearly not a core service. If you own a web design agency, however, you might have a problem.
  • You define their work hours. Contractors observe deadlines, not a daily schedule that you set.
  • You provide the equipment or supplies they use. If you require them to come to your place of business and use one of your workstations, their contractor status may be questioned.
  • They don’t invoice you. If all they submit to you is an hours sheet so you can cut them a check for the number of hours they worked, it sounds more like a payroll arrangement.
  • You are their only client. Independent contractors typically work with several clients.
  • There’s no contract. This is a big one. If you don’t have a contract that defines the goods or services provided and has both a beginning and an end date, that person could try to claim that they are actually an employee and entitled to benefits and overtime.  However, a contract alone won’t qualify someone as an independent contractor.

Even when done accidentally, misclassifying employees as independent contractors can expose small business owners at state and federal levels. They may be treated as employees for labor law purposes and you may be finding yourself involved in costly litigation. This is why you should work with an experienced Miami business law firm when you are engaging talent or need to audit your workforce for compliance.

At Portuondo Law Firm, we set ourselves apart because we work with clients to proactively identify potential misclassification issues and create valid independent contractor classifications where appropriate. When you work with us, you can count on a holistic approach that makes good business sense and takes into account the legal outcomes of worker classification decisions. If you want to confirm your compliance with employment laws, please contact us to discuss your situation today.

 

 

 

DISCLAIMER

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters, and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send us any documents to review or confidential information until such time as an attorney-client relationship has been established.

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Portuondo Law Firm

Portuondo Law Firm provides custom services to South Florida businesses and residents. The Firm provides the personalized experience only a boutique firm can, without sacrificing quality.

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