We are often asked what is the difference between the Independent Contractor and an employee. Often times employers are turned off by hiring an employee due to the cost. However, engaging an independent contractor that is actually classified as an employee can we very costly and usually involves additional audit, accounting and sometimes legal fees when addressed the misclassification few year later.
The main difference is :
- Works at a specific time and place set by you, the employer
- Generally works for just one company
- May receive training
- Uses your tools or other work-related resources
- Is subject to a large degree of control by you
- Is generally paid a salary or hourly wage
Why does it matter? Because employees…
- Often receive employment benefits
- Are subject to financial deductions such as income tax and Social Security tax, among others
- May join a union
- Are often protected by state and federal law for overtime and employment discrimination issues
An independent contractor:
- Can work whenever and sometimes wherever they’d like
- Can work for multiple companies
- Usually trains on their own
- Uses their own tools and resources
- Controls their own method of work
- Is often (but not always) paid by the project or on a flat-fee basis
Why does it matter? Because contractors…
- Do not normally receive employment benefits
- Pay their own self-employment tax and are not subject to other withholdings
- May not join a union
- Generally do not receive overtime or protection for employment discrimination
So regardless of the cost, the businesses should always follow the rules and the law, when determining the difference.
However, if you are just wondering what would be the cost alone, here is a really cool tool that our partner Intuit created to help us along.
With this tool, you can plan better, and have a very good idea how will the new hire effect your budget. But the decision if you should hire or contract out should be made solely based on the type of the relationship, and not on the cost!