Employee or Independent Contractor?

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 What are Employee Rights?

Employee rights refer to those rights an employer must grant to its employees. State and federal employment laws outline many different rights employees obtain once their employer legally hires them.

Typically, employee rights are enforceable once a worker begins employment or signs their employment contract. Employee rights are typically terminated once the employer-employee relationship is terminated.

Certain employee rights may be enforceable before or after employment. Some common examples of employee rights may include, but are not limited to:

  • The right to be paid federal minimum wage;
  • The right to be free from discrimination at any stage of the employment process, which includes hiring and firing;
  • The right to privacy in the workplace. It is important to note that the scope of privacy rights may depend on the nature of the individual’s employment; and
  • Various rights regarding leave for:
    • disability;
    • medical leave; or
    • family leave.

In addition to these rights, an individual employee may also obtain contract rights specific to their unique employment contract terms. For example, some employment contracts may include a statement providing that the employee cannot be terminated before a specific date.

What are Independent Contractors?

Independent contractors are individuals who work for a company, either under a contract or on a case-by-case basis. It is important to note that, although the independent contractor is employed to work for a company, they are not considered employees.

Independent contractors work for themselves. Because of this, they earn their living from their own business instead of relying on employers to provide them with a salary.

Examples of individuals who are considered to be independent contractors include, but are not limited to:

Professionals who offer services or advice to the general public, which may include attorneys and real estate agents; and
Trades in which the worker has greater autonomy, for example, writers.

  • The majority of labor and employment laws do not apply to individuals who are independent contractors.
  • Independent contractors control what work they take on as well as how that work is completed.

In addition, an independent contractor does not have taxes withheld from their income by their employer.

What are the Pros and Cons of being an Independent Contractor?

There are numerous pros to being an independent contractor, such as:

  • Control over where and how the individual works, as well as control over how each task is to be performed;
  • Taxes are not withheld from the individual’s paycheck;
  • More flexibility with working hours; and
  • Control and flexibility regarding what projects the individual takes on.

There are, however, also some cons to being an independent contractor:

  • Paying for insurance and health benefits entirely on their own;
  • Responsibility for all taxes on contracting income;
  • Sole responsibility for any injuries that result from the individual’s work; and
  • Fewer protections against workplace discrimination.

One of the major cons of being an independent contractor is the inability to collect worker’s compensation in the event of an injury. Generally, an independent contractor is not eligible for worker’s compensation benefits.

Whether or not an independent contractor is eligible for worker’s compensation depends on the state laws and the terms of employment. There are exceptions to this rule, including when an individual is hired to complete particularly risky or inherently dangerous work.

One alternative to worker’s compensation for independent contractors is to purchase worker’s compensation insurance. If the individual is injured on the job, they would then file a claim with their insurance provider.

The laws are fairly straightforward in terms of work ownership. In general, independent contractors own the rights to their own work.

This means that, typically, independent contractors have ownership rights to any work they create. One exception would be if the contractor and the employer have signed a written agreement that specifies that the employer will be the owner of any work created by the independent contractor for that specific job.

How Do I Determine if I am an Employee or an Independent Contractor?

In general, control is the most important element that an individual must examine to determine whether they are an employee or an independent contractor. If someone controls how an individual does their job and what they produce, they are employees.

The Internal Revenue Service (IRS) has created a 20-factor test to determine if sufficient control exists to classify an individual as an employee. The 20 factors in this test include:

  • Instructions: Independent contractors direct themselves, but employees are given instructions;
  • Training: An employee is instructed to do things by a certain method or procedure;
  • Integration: The employee’s services are integrated into the operations of the company instead of being separate from them;
  • Services rendered personally: Independent contractors, in many cases, delegate duties to subcontractors rather than personally doing the work;
  • Hiring, supervising, and paying assistants: Contractors can hire their own;
  • Continuing relationship: The employee’s relationship with the company is ongoing, whereas a contractor may never work with the same employer twice;
  • Set hours of work: An independent contractor, for the most part, makes their own schedule;
  • Full-time work: Employees generally work full time;
  • Work done on employer’s premises: Employees work on site;
  • Order or sequence of work to be done set by an employer: An independent contractor can decide how their work is done, so long as it is finished according to the contract;
  • Oral or written reports: Individuals who are required to report to their employer regularly are employees;
  • Payments: Employees are paid biweekly or monthly, whereas the job pays contractors;
  • Expenses: An employee’s business expenses are commonly covered by the company;
  • Tools and materials: Typically, an independent contractor will provide their own tools and materials;
  • Investments: An independent contractor makes personal investments in equipment, advertising, etc.;
  • Profit or loss: An employee’s work will not generally change their pay, while an independent contractor’s might;
  • Works for more than one person or firm: This is a good indicator that someone is not an employee;
  • Services available to the general public: Independent contractors make their services available;
  • Right to fire: Independent contractors cannot generally be fired unless they have not performed up to the standards of the contract, whereas; employees can be fired if for whatever reason; and
  • Right to quit: An employee is permitted to quit at any time. In contrast, an independent contractor must finish the agreed-upon work.

Also, it is important to note that an employer may face severe consequences for misclassifying an employee. Independent contractors have specific tax requirements, and certain deductions must be taken if a worker is classified as an employee.

Should I Contact an Attorney?

If you have any legal issues, questions, or concerns related to your classification as an employee or an independent contractor, it may be helpful to consult with a qualified contract lawyer in your area. Your lawyer can assist you in reviewing the factors listed above, ensure that you are properly classified, and advise you of your rights related to your classification.

If you are an employer, it is important to ensure that your employees are properly classified, especially for tax purposes. Your lawyer can help ensure that you report payments made to any independent contractors you have hired and that you are paying the proper taxes for your employees.

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