Employee Or Independent Contractor? Why The Distinction Matters
One of the most important questions in employment law concerns whether an individual is classified by a business as an employee or an independent contractor. If your employer or business classifies you as an independent contractor, for example, you are not going to receive all of the same benefits and legal protections of someone who is classified as an employee. This article takes a closer look at the distinction between the two categories.
Definition
The Internal Revenue Service (IRS) defines an independent contractor as a person who is self-employed instead of being employed by another person or company. The general rule in determining whether you are an independent contractor is whether the person who pays you has the right to control the details of how you perform your job. If the payer has that type of control over your work, then you are probably an employee rather than an independent contractor.
Other factors the law considers when deciding whether someone is an employee include whether the business relationship is long-term and the worker's potential for profit or loss. You do not necessarily need a contract or written agreement with an employer to be considered an employee. The nature of the relationship, rather than any formal employment contract, is enough evidence in many cases.
Fair Labor Standards Act
One reason why the difference between the two categories is so critical is that employees fall under the protection of the Fair Labor Standards Act (FSLA) and independent contractors do not. The act requires employers to pay employees at least the federal minimum wage and to pay workers overtime at a rate of one and a half times their regular pay.
Misclassification
Another reason employers may want to avoid classifying you as an employee is that they must pay Social Security and Medicare taxes on employees. Independent contractors must pay these taxes themselves. This fact, along with the employer's obligations that come with the FLSA, tempts some employers to misclassify workers as independent contractors rather than employees. Misclassification can potentially cost you a lot of money by forcing you to pay taxes that should be paid by the employer or business instead.
Clearly, the distinction between an employee and an independent contractor is one that could cause workers significant financial harm if they are improperly placed in the wrong category. If you find yourself in this unfortunate situation, your best course of action is to arrange a consultation with an experienced employment attorney in your area.
Contact an attorney like Allen D. Arnold Attorney at Law to learn more.
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