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How to Determine Worker Status: Employee or Independent Contractor

How to Determine Worker Status: Employee or Independent Contractor.jpg

If your business is growing or you need seasonal help, you might decide to engage the services of an independent contractor. There are many advantages to choosing independent contractors over new employees: they aren’t entitled to vacation, insurance, or other benefits, and you can work with them on specific projects rather than committing to employing them. But how do you determine worker status for employees and independent contractors? It’s important to understand the differences between employees and independent contractors so you don’t get into trouble by misclassifying them. Fortunately, the experts at Tower Books are here to provide you with the guidance you need to learn how to determine worker status.

Employee vs. Independent Contractor: Understanding the Differences

While employees and independent contractors might seem similar at first, there are a number of important legal differences between the two, and knowing them can save you countless dollars and future headaches that come with misclassification.

Employees

There are several telltale signs that can help you determine the worker status of an employee.

  • Employees are hired to work for your company for the foreseeable future.

  • They are under the direct orders and supervision of their employer, who controls the work they perform for your company.

  • They can be salaried or hourly, and they are eligible to receive overtime.

  • Employees may receive company-provided benefits, such as health insurance, vacation time, sick leave, and 401(k) plans or other retirement planning.

  • They are also eligible for unemployment compensation, workers’ compensation, and other benefits offered by the government.

  • Employees receive any supplies they need to do their job through your company.

Independent Contractors

By contrast, independent contractors tend to work with your company in a much more limited capacity, therefore entitling them to greater control over their work but with fewer benefits.

  • Independent contractors often work for your company on a limited basis that is restricted to a specific project.

  • They exercise greater control over their work, including when they work, where they work, and how they complete the work or achieve the results outlined in their contract.

  • They are paid hourly or receive a flat fee for the agreed upon services, and they are not eligible to receive overtime.

  • Contractors are not entitled to company-provided benefits and typically are not eligible for unemployment benefits, workers’ comp, or other benefits provided by the government.

  • They are responsible for their own supplies, equipment, and other materials needed to do their work for your company.

For more information about how to determine worker status, use this handy infographic from Gusto.com:

Employee vs. Contractor: Is My Worker an Employee or Contractor? - An infographic by the team at Gusto

Need More Help? Contact Tower Books Today

If you have questions about engaging the services of an independent contractor or how to determine worker status, contact Tower Books. We provide bookkeeping and consulting services to assist businesses with a wide range of finance and operations needs, including risk management, cash flow, preparing to meet with your tax accountant, and more. Even if we cannot solve an issue directly, we can help you assess your concerns and determine if you need additional help. We can also clean up your books to give you more accurate and timely information about your finances and provide strategy and profitability coaching to help grow your business. Call us today at (757) 512-8742 or contact us online.