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Differences between an employee and an independent contractor

On Behalf of | Feb 24, 2023 | Employment Law

Standard hiring practices continually adjust to meet the needs of businesses in a shifting economy. The flexibility and facility of modern work permit an increasing number of companies to take on independent contractors instead of hiring employees.

While this practice can benefit employers and workers alike, the arrangement is not one that a business should use to deny workers legal protections. Companies must understand and follow the guidelines outlined in federal and state law.

Defining working relationships

A work agreement should classify the worker’s relationship with a business in one of four ways:

  • Employee
  • Statutory employee
  • Statutory nonemployee
  • Independent contractor

The distinction between these classifications varies by whether a worker depends on the business as the sole source of income, whether workers can operate at their own pace and the degree of control a company has over workers.

Understanding the level of control

A work contract should define the company’s degree of control and the worker’s independence to complete tasks. A business can give employees instructions about where, when and how to work. The company may dictate the types of tools workers must use and how to use them. Independent contractors generally have the freedom to complete the work with their own preferred tools and methods.

An independent contractor is also free to offer the same services to other businesses. An employee often has greater restrictions on working with competitors.

Additional factors can blur the line between whether a worker is a contractor or an employee. Work agreements need to follow the law and avoid crossing the line into employee misclassification. A company that claims an individual is an independent contractor while treating the person as an employee may find itself violating the law.