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Employee or
Independent Contractor-What's the Difference?
by Bob Goffredo
The proper classification of employee or independent con- tractor is
important. What are the pros and cons of each? How do you know which is
which?
To help determine the status of an
individual, the IRS has established 20 factors it reviews to help determine
the proper classification. I will highlight several of the items that may be
of concern.
 | Instructions to a worker-A worker
who is subject to instructions about when, where and how to work is
usually an employee.
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| Training-An employee is more
likely to be subject to training than an independent contractor.
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| Requirements that services be
personally per- formed-Greater flexibility given to the worker to
designate who may perform services favors an independent contractor
classification.
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| Hiring, supervising and paying for
a worker's assistants -If the business provides assistants to the worker,
as opposed to the worker providing his or her own assistants, this may
indicate that the worker is an employee.
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| Requirements of full-time
work-independent con- tractors, unlike employees, do not normally work
full- time for one business and are free to work when and for whom they
choose.
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| Paying workers by hour, week or
month- Employees are normally paid hourly, weekly or monthly, while
independent contractors are usually paid by the job or on a straight
commission basis.
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| Furnishing workers' tools and
materials- Employees are normally provided necessary work tools and
materials. Independent contractors tend to furnish their own.
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| Working for more than one business
at a time- Employees usually work for only one company, while independent
contractors frequently work for more than one business.
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| Firm's right to discharge
workers-An employer exercises control over its employees through the
threat of dismissal, while independent contractors normally cannot be
dismissed as long as they meet their contractual obligations.
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| Worker's right to terminate
relationship- Employees are usually entitled to quit at their leisure,
while independent contractors generally must fulfill contractual
obligations. |
While I have only listed 10 items of
20, there is more information available on the Internet by going to
http:llwww .irs. ustreas .gov Ip lainlbus-info/index .html. This
information should also be available from your accounting service or even
some software.
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