Independent Contractor or Employee?

The difference between an independent contractor and an employee is sometimes overlooked. While the difference is subtle, the reporting impact is not. An employee will have tax and insurance obligations that an independent contractor does not. There are also consequences of misclassification.

 

In general, the issue comes down to where the control of work lies. If the manner the work is done lies with the worker, then that individual is an independent contractor. If the hiring entity controls how the work is done, the individual is an employee of the hiring entity. The distinctions between the two are made clearer by examining the facts surrounding the behavioral and financial controls, and how the relationship between the two parties is structured.

 

As with every rule, there are special cases and exemptions to these rules. The IRS provides more detail and examples on their website , including a brochure specific to the topic.  The Department of Labor, in conjunction with the IRS, has a recorded webinar covering the topic also.