If the business depends heavily on one of its workers, that person is more likely to be an employee and not an independent contractor. If the worker is considered easily replaceable and their work requires specialized skills, that person is probably an independent contractor.
A company will hire an employee to fulfill a specific role and perform a certain task. An employee typically works regular hours and receives regular paychecks with automatic deductions for state and federal taxes. If the person working for the company depends on their job for a majority of their personal income, they will most likely be considered an employee. The company that hired the employee usually has more control over the finished product, rather than constantly adjusting their goods and services for a particular client.
If a company is struggling to determine if a worker should be an employee or an independent contractor, the employer should consider several different factors. If the company is hiring someone with the expectation that the person will supply their own equipment, the worker should be compensated as an independent contractor. Any instance in which the company does not supply its workers with all the equipment necessary to perform the basic duties and responsibilities of the job, the workers will be considered independent contractors.
Some jobs come with a great deal of flexibility such as those that require performing duties for a limited amount of time, the worker will be an independent contractor. This person might have the freedom to accept work at the company as often or as infrequently as they please.
Deciding whether a person is an employee or an independent contractor usually comes down to the type of work being performed. Independent contractors also tend to provide their services to more than one company, such as a consultant with several different clients. This also usually means that the worker does not depend on one company for the bulk of their income.
Unlike a traditional employee, an independent contractor will not see taxes deducted from their paychecks. This person will usually have to monitor their income at the end of the year and pay local, state, and federal taxes in bulk. Independent contractors usually do not have this requirement. Or are they doing temporary work on projects that have specific end points? Is the worker paid hourly, weekly or monthly? Or do they get paid once an entire project is complete?
Does the company pay for travel? For employees, travel costs are usually covered by the company. Independent contractors, however, pay their own travel costs and earn enough on the overall project that those costs end up being covered by the fee they're paid.
What happens if a worker is misclassified? Business News Daily Contributing Writer. Jennifer Post is a professional writer with published works focusing on small business topics including marketing, financing, and how-to guides. She has also published articles on business formation, business software, public relations and human resources.
Her work has also appeared in Fundera and The Motley Fool. Grow Your Business. Updated What Are Payroll Taxes? Learn your withholding tax responsibilities as an employer. Quitting Your Day Job? The Basics on Benefits Ready to leave the corporate world behind? Here's what you need to How to Start a Sole Proprietorship.
Looking to start your own business? But where we most often see problems occurring for our clients is when relationships have evolved over time. The original contractor agreement may no longer be fit for purpose, placing you in breach of your legal employment obligations. An independent contractor also referred to as a freelancer or consultant is someone self-employed who carries out work for you. The following are the three key factors that help differentiate — in the eyes of current UK law — employees and contractors:.
Mutuality of obligation: Contractors are not required to accept or to be offered work. Control: Contractors will likely have considerable freedom over the hours they work per week or per month and set their own schedule.
Substitution: A contractor would, in theory, be able to hire someone in their own right, or get someone else, ie. A specialized skill set: Contractors can bring skills and talent to the organisation that you may not need to access on a day-to-day basis. Objectivity: Less embedded in the organization, contractors may be able to bring a more objective view to projects and provide some constructive challenge to processes, helping you to improve.
Good for urgent or temporary work demands: If you need help fast, someone with specific skills who is ready to do the job can be a great help. This will either help you to shape the role you recruit for, or you might decide to offer a permanent position to the contractor re-issuing employment contracts, of course! For example, they are not entitled to receive paid annual leave from them. However, companies must fulfil health and safety and data protection laws for contractors.
Contractors are in control of how many hours and days they work for companies that hire them. As they accept or deny requests for work, they are in control of where they go. Wage Requirements The company establishes the salary that they will pay the employee, and must at least pay them minimum wage. Contractors set the amount of money they charge for each job, which can vary depending on the level of work. Therefore, it is not on a salary basis. Rather, they usually issue invoices. However, they can work for another business as long as the two jobs do not impact on each other.
Contractors can provide work for more than one business at a time. They can also provide work to businesses within the same industry. Depending on their type of work, this may in fact often be the case. Contractors are in control of their job role and the type of work they offer to companies.
They can carry out the work however they want. They must provide employees with certain information, instruction, and training, and implement organisational procedures, which all employees must comply with. Contractors will have likely received their own training, so they can carry out their work competently. Companies who hire contractors are not responsible for their tax, as they pay a one off, set amount of money. The contractors themselves or the company who hires them out are responsible for handling their tax.
Role Execution Employees must carry out their role themselves. They cannot send someone else in to do their work. Contractors can exchange work with other contractors if they are part of a team.
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