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What you should know about hiring contractors vs. employees

Employees and independent contractors are two types of workers who often perform similar duties, but in fact have different legal definitions. A company may be composed of employees and contractors who work side by side and collaborate frequently, even performing similar jobs. But there are major distinctions between the two, and it isn't just their job title.

A smart employer should know some fundamental distinctions when deciding which type of worker to hire. This is crucial in order for both the employer and the worker to fulfill their legal obligations to each other. Here, we'll elaborate some of the key differences between contract workers versus employees.

How are they different?

The primary difference between contract workers and employees is the amount of control that the employer has over the worker. Take a look at some of the specific differences between the two:

Employees

  • Usually work for one employer
  • The employer has control over the work process, job location, and work hours.
  • Frequently receive employment benefits
  • Generally do not incur costs related to work duties
  • Receive net salary or hourly wages after income tax
  • Protected by wage and hour laws, such as minimum wage and overtime
  • Covered by workplace safety and anti-discrimination laws
  • Entitled to form or join a union

Independent Contractors

  • Frequently work with several clients concurrently
  • Control their own hours, location, and work process
  • Do not receive employment benefits from the client
  • Incur costs related to work duties
  • Paid according to the terms of a contract
  • Required to pay self-employment tax. Not subject to tax or FICA withholding.
  • Not protected by state and federal wage and hour laws
  • Not entitled to unionize

However, it should be noted that the hiring party and the worker do not control whether the worker is an employee or independent contractor. In other words, they cannot contract around the law. The law determines whether a worker has been property classified as an employee or indepdendent contractor. Therefore, it is important to consult with an experienced employment attorney to know whether to classify a worker as an employee or indepdent contractor.

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