A simple definition is that an independent contractor is a person who has a written contract with a company (or individual) to offer services for a fee; whereas, an employee is a person who works for a company for wages. Whether a person is an independent contractor or an employee is a legal determination that involves many more factors than merely not withholding taxes and not paying workman’s compensation insurance.
Most people who provide services to a company are deemed employees.
Very few actually qualify as independent contractors.
Before classifying a person as an independent contractor, it is important to seek legal advice from an attorney as to all the dos and don’ts for a company to be able to legally call someone an independent contractor.
The company that wrongly classifies an employee as an independent contractor has all the risk, and the only one who is penalized for the wrong classification. This can include:
- claims for over-time wages,
- criminal prosecution,
- meal and rest break wages, and
- penalties for failure to comply with the wage and hour laws; as well as
- penalties for failing to carry workman’s compensation insurance and
- 100% liability for injuries of the worker;
- among many other risks of liability.
It is important that a company correctly classify an independent contractor or an employee, and the best advice is to consult with an attorney before classifying anyone as an independent contractor.