What is the difference between an employee and an independent contractor?
An employer-employee relationship exists when a person who hires an individual to perform services has the right to exercise control over the manner and means by which the individual performs his or her services. The right of control, whether or not exercised, is the most important factor in determining the relationship. The right to discharge a worker at will and without cause is strong evidence of the right of direction and control. Among other considerations: • Whether the one performing the services makes the services available to the general public. • Whether the principal or the person providing the services supplies the tools, equipment and place of work for the person doing the work. • The length of time for which the services are performed to determine whether the performance is an isolated event or continuous in nature. • The method of payment, whether by time, a piece rate or by the job. • Whether or not the work is part of the regular business of the principal. • The extent
Many factors are considered when determining whether someone is an employee or independent contractor. Some of those factors are: Independent contractors set their own hours, use their own tools, work when and for whom they choose, and are responsible for paying their own State and Federal withholdings.
The major factors to consider in deciding whether a worker is an independent contractor or an employee fall into three main categories namely; behavioral control, financial control and relationship of the parties. Usually a worker is considered an employee only when the business has the right to direct and control the worker. Typically, if you have significant investment in your work you may be considered an independent contractor. If a worker receives health insurance or company paid retirement such arrangement would justify an employee/employer type relationship.
Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so, even when you give the employee freedom of action. What differentiates employee from independent contractor is the owner’s or employer’s right to control the details of how the services are performed. For more information please visit http://www.irs.gov/businesses and consult with an attorney.
