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What’s the Difference between an Employee and Independent Contractor?

The stagnant economy has forced many employers to take creative action when it comes to protecting their bottom line. Unfortunately, some have gone too far and are doing things that are unethical or downright illegal. One of the most common ways employers bend the rules is in employee misclassification. Some companies, in an effort to reduce their obligation to employees, are listing those performing work as independent contractors (ICs), when in fact they should qualify as employees.

What makes the issue even more complicated is the fact there is no “set in stone” definition for an IC. This can make it difficult to determine whether or not a company is taking advantage of you, which is especially true in today’s economy when people are just happy to have a job and unwilling to push back against anything that could put their income at risk.

IRS and Independent Contractors

To determine what is considered an IC, you can look to the IRS regulations concerning your status. After all, you will pay taxes differently based on whether you are an employer or IC, so it’s a good place to begin to sort out where you stand.

IRS regulations focus on the level of control an employer has over the work being performed and how that work is accomplished. For instance, an IC might be told X product or service is needed by Y date, and he or she is free to meet that obligation in any way he or she chooses. An employer, on the other hand, would need to arrive at a workplace, perform such and such duties, and complete the task while “on the clock,” or under the watch of the employer.

Of course, there are plenty of employees that work from home who are not ICs, so the IRS guidelines alone might not be enough to make your status clear.

Detailed information about the IRS guidelines concerning ICs and employees can be found at the IRS website.

Are You Paid as an Employee or an IC?

There is also some focus on a person’s method of compensation when determining if he or she is an IC or employee. For instance, if a person is on an employer’s payroll and receives a steady paycheck, he or she is most likely an employee. Sporadic pay for specific services or products means a person is more likely to be considered an IC.

Additionally, a worker might be considered an IC if his or her own equipment, tools, and materials are used to perform a job, if his or her work hours are not set by an employer, or if work is only provided on a temporary basis. Keep in mind, you must look at the big picture, as just one of these factors is usually not enough to prove IC status.

Further Defining IC and Employee Statuses

Federal agencies and courts have taken further measures to define the difference between ICs and employees by creating the “economic realities test.” This evaluates the worker’s dependence on the work for a particular business. For instance, if a person is earning the majority of his or her salary from a single business, he or she is more likely to be considered an employee. This test also considers level of skill, intent of the parties, and the nature of the work, as well as the payment of benefits and social security. However, since disputes over benefits often arise regarding worker classification, several factors must be considered.

The bottom line is if you believe you are unfairly being qualified as an IC, you have a right to look into the matter. Companies do take advantage of workers in this way and there is no reason why you should be forced to suffer or forego benefits because your employer has mis-qualified you.

For more information or to learn what you can do if you are being cheated based on your status as an IC, contact Borrelli & Associates, P.L.L.C. for more NY Employment Law information.


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