A contract employee or contract worker is a laborer who is not considered a regular employee of a business or company. A contract employee may be hired on a short-term or part-time basis, often to complete a specific task, such as constructing company property. Contract employees may also be called independent contractors.

A contract employee may not be included in the business’ regular payroll and may operate independently of the business’ normal functions. Contract employment laws generally involve both employment and contract principles.

This is because, in many cases, the contract employee is operating under a formal contract with the employee. This is usually a different type of contract than an employment contract used when hiring an employee, and may cover only the specific details of the project that is to be accomplished.

In order to avoid any confusion regarding an employee’s status, it should specifically state in the contract, or policy for contractual employees, whether the worker is going to be listed as a contract worker or a regular employee. The contract should also provide whether the contract worker is entitled to benefits or not.

There are some positive aspects of being an independent contractor, including:

  • Control over where and how the individual works;
  • Control over how each task is performed;
  • Taxes are not withheld from their paychecks;
  • Working hours are more flexible;
  • More control and flexibility with regard to which projects the individual takes on.

There are, however, also some negative aspects to being an independent contractor, including:

  • Paying for all insurance and health benefits on their own;
  • Being responsible for all taxes on contracting income;
  • Having sole responsibility for any injuries that result from their work; and
  • Having fewer protections against workplace discrimination.

An independent contractor is solely responsible for their actions and inactions. In many cases, when an independent contractor is hired, their contract will state that they will act as an independent contractor and not as an employee or agent of the company.

This means, for many types of jobs, an independent contractor will be required to carry liability insurance, in case their actions or inactions result in a legal claim against them or the company. An independent contractor is not authorized to enter into any contracts or agreements on behalf of the company that hired them.

What are Some of the Characteristics of Contract Employees and Contract Workers?

One of the main factors that is examined when determining whether a worker is considered a contract employee or a regular employee is the degree of control which the company exercises over their work project. In general, an employer exercises a great deal of control over its regular employees, this includes:

  • The number of hours worked;
  • Pay rates; and
  • Benefits offered.

In contrast, an independent contract employee and contract worker often exercises much control over their work. Contract employees may perform some or most of their work outside of the premises of the company. 

A contract employee may also have control over:

  • The pace at which their work proceeds, although there is usually a deadline;
  • The details regarding how the work is accomplished; and
  • Securing the materials that are needed to complete the project.

If an employer is able to control those details, an employee may be more akin to a regular employee. However, if the employee is controlling these types of decisions without supervision, they are likely to be considered an independent contract worker.

Other factors which may be considered when categorizing a worker may include:

  • The regular business interactions between the employer and the worker;
  • Whether the contract workers is using separate capabilities, such as: 
    • advertising; 
    • licensing; and 
    • production;
  • Whether the employer supplies tools or equipment for the contract employee; and
  • Whether the employee will be responsible for losses or if the employer is responsible.

Independent contractors and regular employees are also taxed differently. Businesses who hire an independent contractor are not required to withhold from their wages:

  • Income tax;
  • Medicare; or
  • Social Security.

Businesses are, however, required to withhold these from their regular employees. A company or business is also required to report all money which was paid to their employees on a W-2 form. 

In contrast, the company must only report payments made to an independent contractor which exceed $600 in a calendar year. This is reported to the United States government using a 1099 form.

It is important to note that every employment arrangement may differ depending on the circumstances. If a dispute over regular employee benefits arises, a court may be required to examine each claim on a case-by-case basis in order to determine whether an employee is a contract worker or a regular employee.

What Rights Do Contract Employees and Contract Workers Have?

There are often significant differences between employees versus independent contractors. It is important to be able to distinguish between a contract employee and a regular employee.

It is important to make this distinction because the majority of labor and employment laws do not apply to independent contractors. If an individual is on a company’s payroll and receives regular paychecks, they are likely classified as an employee, not as an independent contractor.

For example, if a dispute arises between an employee and their employer, they may be entitled to certain specific remedies if they are regular employees. However, if they are contract workers, pursuant to contract employees’ rights, they may not be entitled to those specific benefits or remedies.

There are typically some significant differences between contract employees and regular employees. A contract employee typically pays their own taxes on a project and there are no payroll deductions from their paychecks.

A contract employee may also pay their own social security costs, which are usually covered for regular employees. Contract employees are typically not entitled to benefits, including:

  • Worker’s compensation;
  • Retirement; and
  • Health insurance.

Regular employees, on the other hand, are typically entitled to these benefits. In addition, a contract worker may be paid in an amount which is agreed upon in the contract, either in installments or a lump sum. Regular employees, on the other hand, are typically paid by hourly wages, a salary, or commissions.

If a dispute of the contract terms arises, a monetary damages award for the non-breaching party may be issued. For example, if a contract employee is denied payment for work they completed, an employer may be required to reimburse the contract employee for their expenses, including the costs of the project as well as any lost profits which resulted from the breach.

Do I Need a Lawyer for Help with Contract Employee and Contract Worker Laws?

It is essential to have the assistance of an employment lawyer for any contract worker issues you may be facing. Your contract employment arrangement may be unique as compared to other contract workers.

Your attorney can provide assistance when you are considering entering into a contract worker position, by reviewing your contract and assisting you with negotiating for the most beneficial employment terms. In addition, if you are required to file a legal claim, your lawyer can assist you with preparing for the lawsuit as well as represent you during any court proceedings.