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What Are The Differences Between Contractors And Employees?

The beginning of understanding anything is knowing its name. Failing to do so, a society is ripe for disaster. Imagine not knowing the difference between one type of medication and another, food and liquid products, and an independent contractor and employee. In one case it can result in a trip to the hospital and in another to the IRS and tax penalties.

There is one word that sums up the difference between independent contractors and employees “control”. Behavioral control, financial control and the relationship between employer and employee or employer and independent contractor. It is the distinguishable features of an independent contractor and an employee that will enable businesses to tell them apart.

Distinguishable Features of Independent Contractors

People are distinguishable by their features - height, weight, hair and eye color, sex and race. And the only way a business is going to be able to know the difference between an independent contractor and an employee are by their distinguishable features.

  • Independent contractors are responsible for paying 100% percent of their own taxes.
  • Independent contractors have the freedom to choose how their work will be completed. Their work hours vary. Whether they choose to work during the day or at night; ten hours one day, and two hours the next, all that matters is that they complete their task by the required deadline.
  • Independent contractors are hired for their experience and skills; the assumption is that they have no need of any type of training.
  • A life of an independent contractor involves marketing themselves and their business, which involves investing in business equipment and paying for all of their business-related expenses.
  • A steady paycheck is not in an independent contractors vocabulary. They get paid on a project-by-project basis.
  • An independent freelancer can show a business profit or loss.
  • Employer’s document or agreement defines them as an independent contractor
  • Independent contractors provide services on a temporary basis and are not important to the day-to-day operations of a business.

    Distinguishable Features of Employees

    • Employees are responsible for paying income tax, Social Security benefits, and Medicare; employers pay half of Social Security and Medicare and unemployment compensation (this all varies from country to country).
    • Employees work at a specific time, usually between 9:00am to 5:00pm, and at one location.
    • Employees usually receive on the job training.
    • Employees are reimbursed for any business related expenses
    • Employees are typically paid weekly, fortnightly and monthly.
    • Employees work for only one employer.
    • Employer’s document or agreement defines them as an employee.
    • An employees contribution to a business is on going as well as the professional skills they provide.

      In Conclusion
      Treat employees and independent contractors according to the perimeters defined above. To do so otherwise, employers might find themselves in hot water with the IRS. Take for example Microsoft Corporations colossal mistake in the late 80’s, when it came to classifying a number of employees as independent contractors. As a result, Microsoft ended up paying back benefits, 401k and stock options to those employees, not to mention unemployment compensation, vacation time and health benefits. Don’t make the same mistake the Microsoft Corporation did.