The fundamental distinction between an employee and an independent contractor lies in the nature of their employment relationship and how it affects their employment rights and responsibilities, as well as the employer’s or client’s obligations. Here are some key differences:
-An employee generally has a continuous and subordinate employment relationship with his or her employer. The employer controls the work schedule, tasks, and how the work is performed. An independent contractor has a more independent contractual relationship. They typically have a per-project or term-specific agreement and have more control over how they do their work.
- Employers withhold income, Social Security, and Medicare taxes from employees’ salaries. Independent contractors are responsible for paying their taxes, including self-employment tax.
- Employees often have access to benefits such as health insurance, paid vacations, sick days, and employer-sponsored retirement plans. Independent contractors typically do not receive benefits and must manage their insurance and benefits.
- Employers can control how, when, and where employees perform their work. Independent contractors have more autonomy in their work and often have control over their location and work schedule.
- Employees have employment rights protected by labor laws, such as the right to a minimum wage, overtime, and protection against discrimination. Independent contractors have fewer legal protections regarding employment rights and are generally considered self-employed in running their businesses.
Determining whether someone is an employee or an independent contractor is crucial to avoiding legal and tax problems. Contact us today.