The labor market has lurched into new territory in recent years. With the rise of the “gig economy,” many workers now do small jobs such as driving customers, delivering food, or shopping for groceries. Though these workers may serve a larger corporation, their day-to-day duties are not explicitly controlled by any individual or entity. This has led to a deep scrutinization of the difference between an employee and an independent contractor.
Industries from wrestling entertainment to ridesharing have grappled with the question of when an independent contractor becomes an employee. For the workers whose category is nebulous, AAL has assembled a short list of distinctions between an independent contractor and an employee as well as some of the benefits and drawbacks of each.
The most archetypical example of an independent contractor is a construction contractor. This job encapsulates the core qualities of an independent contractor well. In theory an independent contractor is an individual who is hired by another entity to perform a task that the entity requires.
A construction contractor may be retained to build a patio, retrofit a building’s floor, or tear down an old structure. In accomplishing these tasks, they exemplify one of the core characteristics of an independent contractor: behavioral control.
An independent contractor is hired to perform a job. However, once they are hired, they have a wide amount of leeway in regards to how they accomplish their goal. Generally, an independent contractor may use whatever tools they wish, they can have any or no training in an area, and they can hire any help they feel they may need to accomplish the job.
As opposed to an employee who may be held to a dress code, code of conduct, or rules regarding what kind of tools must be used to finish the work, an independent contractor has none of these constraints as long as they stay within the bounds of the agreement with their hiring entity.
While independent contractors enjoy a wide degree of latitude in how they do their work, these benefits come at an economic cost. Independent contractors will absorb a lot of the expenses of a job in their fee. This means that material fees, subcontracting rates, and other expenses will have to either be factored into the initial cost estimate or will have to be absorbed by the independent contractor.
By contrast, an employee who is assigned a task will be able to seek reimbursement for fees incurred while accomplishing their goal. If an employee wants to acquire new training, they can potentially take advantage of a tuition reimbursement program. While an independent contractor may own their tools, that means that if their tools or equipment break during the job, they will also have to pay to replace that equipment.
In addition to having to absorb costs, an independent contractor is usually only paid for their work as determined by their employment contract. By contrast, a normal employee is paid regularly. This protects employees by guaranteeing them a minimum wage as well as overtime compensation if they work a certain number of hours.
One way that organizations such as the IRS determine whether a worker is an independent contractor is by analyzing the relationship between the alleged contractor and their hiring entity. In order for the individual to be considered an independent contractor, they must not perform “essential” functions and they must not be permanent employees.
Some examples of evidence that an independent contractor is actually a permanent employee include:
While no one feature will make the distinction between an employee and a contractor, the IRS and other entities will weigh up all the evidence presented to determine whether the individual is an employee or an independent contractor.
One of the major distinctions between an employee and an independent contractor is that employees often lack liability. This is because of a legal concept known as “vicarious liability.” Under vicarious liability, a third party may be responsible for damages caused by the perpetrator of a harm.
Since they are part of a larger organization that oversees their training, practices, and tools, an employee is not usually individually liable for a mishap as long as they are following company policy and therefore the employer is vicariously liable. By contrast, independent contractors may have to face down legal responsibility alone if they should cause some accident or harm.
Sometimes an individual can be both an employee and an independent contractor. This is because even if an individual is hired by an employer, they may be able to act as an independent contractor in certain circumstances.
For example, if a doctor works for a hospital, they would be considered an employee. However, if that doctor decides to treat private patients in their homes using their own tools, that work may be considered independent contracting. This is because the work is not being done at the doctor’s place of employment nor is it using company time or tools.
Conversely, most attorneys could be argued to be independent contractors. They perform a set task for a client and then the relationship ends. However, in some circumstances, this arrangement changes. An attorney who is retained by a corporation to staff their legal department who receives a pension, salary, and bonuses from the company is likely to be considered an employee.
One of the key reasons that the employee vs. independent contractor debate is so fraught is because of taxation. As a general rule, employees do not have to worry about taxation but independent contractors do.
In a traditional work environment, the employer is responsible for withholding the necessary pay from an employee’s payroll. This includes tax withholdings for medicare, federal or state income tax, social security, and any other mandatory withholding. Additionally, certain programs require an employer to match their employees’ contributions to those rates. If the employee is actually classified as an independent contractor, not only does the employer not have to match the contractor's contributions, the responsibility for managing the tax withholdings shifts to the contractor.
Independent contractors are responsible for withholding and reporting their own tax assessments. Additionally, independent contractors also have to cover their own health insurance, life insurance, and retirement savings.
If you have been mischaracterized by your employer in order to manipulate your availability for benefits or liability protections, you may be able to file a lawsuit in order to seek justice for the losses that you have suffered. By proving your true employment status, you may be able to recover access to the benefits or protections that you are owed. The best way to prevail in your lawsuit is with an Employment Law attorney.
An experienced Employment Law attorney can zealously advocate on your behalf in order to get you the best possible outcome for your case. Using their legal expertise, trial tactics, and expert witnesses, your Employment Law attorney will be able to gather evidence of your mistreatment and present that information in the most compelling way for your case.
AAL has a number of experienced and dedicated Employment Law attorneys who can help you seek the justice that you deserve.
*Disclaimer: Attorney At Law does not represent all lawyers in all states. There may be differences of opinion. It’s always advisable to consult with an attorney when in a legal situation.
