Employee VS. Independent Contractor

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As a business owner, it is imperative that you understand the employment status of your workers, and how their status will determine the required workers’ compensation coverage. Most of the time, all employees, whether they are full-time or part-time, are required to be covered under your policy. Independent contractors, however, are typically responsible for acquiring their own policy. Understanding this difference is incredibly important as an employer to ensure that you are complying with the requirements needed to stay in compliance with state and federal laws.


What is the difference between Employees and Independent Contractors?

An employee, while distinguishable by full-time and part-time factors, are on your businesses payroll and receives payments and benefits from you. A contractor is an independent worker who does not receive benefits, and their job duty and description are outlined in a contract signed by both parties. A contractor is allowed to work for other businesses, provides their own equipment, sets their own schedule, hours, and more. While an employer may determine what is needed and the outcome they would like of the job, they are unable to direct the independent contractor in any other way. An employee is beholden to the rules set forth by their employer, and the employer has the right to determine when, where, and how their job is done.


Why is the distinction so important?

Misclassifying an employee as an independent contractor, or vice versa can be a costly mistake. As an employer, you have a duty and obligation to your employees to ensure that you are abiding by state and federal laws when it comes to things like overtime, minimum wage, unemployment, workers’ compensation, and withholdings and contributions to income tax, social security, Medicare and more. Employers are not obligated to provide these items to independent contractors. If the line of independent contractor or employee is blurred, a contractor might be able to file for workers’ compensation benefits from you and win their case. If an employer has misclassified an employee, that employee could be entitled to back pay, benefits, taxes, and more!


What are the defining factors?

Have your employee and independent contractor paperwork saved in a secure location so you can reference and update it as needed. While having up-to-date paperwork is incredibly important, be mindful of the fact that in some workers’ compensation cases, having paperwork that states a worker is an independent contractor may not always be sufficient. The state workers’ compensation board will determine a case by looking at all factors, not just the paperwork. They will be looking into the determining factors of what makes a worker an employee; how much supervision they had by the employer, to what degree there was direction from the employer, to what degree the employer had control over the worker, and whether or not the worker was financially dependent on the employer. To eliminate confusion about the role or status of a worker, keep diligent notes, and meet often with your employees and independent contractors to ensure that all parties are aware of what their status is.


Choose Erwin, McCane & Daly

If you are a business owner looking for more guidance on the difference between employees and independent contractors, or an employee who feels their employment status has been misclassified, give our team a call to schedule a free consultation! We specialize in workers’ compensation claims and can help guide you and your case to the outcome you deserve.