4 Situations Where the Difference Between Being an Employee and an Independent Contractor Matters - CareerMetis.com

4 Situations Where the Difference Between Being an Employee and an Independent Contractor Matters On the face of it, the difference between a traditional employee and independent contractor may seem minimal, as oftentimes, employees and independent contractors work side by side, with little distinction or difference in job duties.However, the differences between the two, carry substantial financial and legal personal benefits and consequences.Understanding the differences, benefits, and consequences between the two could mean the difference between a continuing professional relationship versus future lawsuit, tax breaks versus steep government fines, or legal protection versus legal liability.evalYou will need to use an Independent Contractor Agreement whenever you or your company hires a person or business to complete a specific task with defined start and finish dates. A traditional Employment Contract should be used when you are hiring or hired permanently, and a relationship of control and supervision exists.The Department of Labor has laid out a 6 prong test to determine whe ther or not someone is an employee or independent contractor. When determining whether an employee-employer relationship or independent contractor relationship exists, a court will look at:Whether the work performed was integral to the businessWhether the worker exercises any managerial skillsWho owns the tools, equipment, and work-spaceWhether the worker’s skill incorporates independent business judgment and the level thereofThe permanency of the working relationshipThe degree of control by the employer4 Differences You Should Know:1. FinancialevalFinancially, employees enjoy greater benefits than an independent contractor, in what is known as “the hidden paycheck.” “The hidden paycheck” includes health insurance, disability and retirement benefits, while an Independent contractor enjoys no such perks and pays for their own health insurance, is responsible for their own injuries on the job, and has no portion of their paycheck set aside for retirement.Aside from general c ommuting costs and business clothes, employees forego having to fork out for start-up costs, staffing and office expenses, and other various professional costs.2. TaxIn the realm of tax implications, employees and independent contractors are treated very differently. Companies are required to pay certain taxes on behalf of their employees, including federal and state employment tax, while independent contractors are solely responsible for their own “self-employment tax.”As an independent contractor’s income increases, so does their employment tax burden. The misnomer of an independent contractor or employee can carry harsh punishments and repercussions by the Department of Labor, resulting in exorbitant fines, unemployment claims, or even federal lawsuits. If you still are unsure about the classification of your employee, leave it up to the IRS, and fill out a Form SS-8.3. LegalEmployees benefit from greater security in their job, and are often protected by state and federal l aw dictating procedure for overtime and discrimination issues. Independent contractors benefit from no such protection, and also are restricted from joining unions, ultimately leading to less negotiating power.evalEmployers however are subject to stricter liability for the acts of their employees A copyright grants the owner the right to reproduce the work and make copies, distribute or sell it, create derivative works, and any performance or display rights to realize commercial gain. If you are an independent contractor, know that by default, the copyright in the original work is yours, unless you have clearly entered into a written agreement that the work is a “work for hire.”When classifying employees as a traditional employee or independent contractor, reactivity is going to land your company in hot water. Proactivity towards classification will help prevent and save you or your business from a barrage of financial, legal, and personal troubles, while taking advantage of cer tain benefits.Make sure you understand the above 4 differences between an employee and independent contractor before you enter into your next contractual agreement.