What Makes Someone an Employee Vs a Contractor

When it comes to hiring workers, many businesses struggle to distinguish between employees and contractors. It’s important to understand the differences between the two, as well as the legal implications and responsibilities that are associated with each.

In simple terms, an employee is someone who works for a company under a set of terms and conditions, while a contractor is someone who provides services to a company on a freelance basis. There are several factors that determine whether someone is an employee or a contractor, and the IRS has specific guidelines that outline these distinctions.

Firstly, the level of control that a company has over a worker is a key factor in determining whether they are an employee or a contractor. If a worker is provided with specific instructions on how to complete tasks, given specific tools to complete those tasks, and is closely supervised by management, then they are likely an employee. Contractors, on the other hand, are typically given broader instructions and greater autonomy in how they complete their work.

Another factor to consider is the level of skill required to complete the work. If the work being done requires a high level of skill and expertise, then the worker is more likely to be classified as a contractor. If the work is more routine and can be completed by anyone with basic training, then the worker is more likely to be classified as an employee.

The IRS also considers the relationship between the worker and the company when determining whether someone is an employee or a contractor. If the worker is considered to be an integral part of the company’s operations, then they are more likely to be classified as an employee. If they are working on a specific project or task that is separate from the company’s core operations, then they are more likely to be classified as a contractor.

There are several legal implications that come with classifying workers as employees or contractors. For example, companies are responsible for providing benefits such as health insurance, paid time off, and workers’ compensation to their employees. Contractors, on the other hand, are responsible for their own benefits and taxes.

In summary, the distinction between employees and contractors comes down to factors such as the level of control, skill required, and relationship between the worker and the company. It’s important for businesses to understand these differences and classify their workers correctly, as misclassifying workers can lead to legal and financial consequences.