When it comes to hiring a person for performing tasks, there are two options available, before the business person, i.e. employee or independent contractor. An employee is a person who provides services to the employer in exchange for adequate consideration, i.e. salary. On the contrary, an independent contractor is a person, or an entity, which provides services to the clients for a definite fee.
Making a choice between these two would be difficult as both have their pros and cons. However, if you learn the differences between employees and independent contractors, then the selection is quite easy. These two terms differ in some aspects, like the degree of control, the permanence of relationship, independence, ability to subcontract, the extent to which the work performed is integral to the employer’s business.
Does an independent contractor have the same rights as an employee?
The importance of defining your status, prior to employment, cannot be overemphasized, as an employee who is misclassified as an independent contractor loses all the rights and privileges of an employee and vice versa.
Who is an independent contractor?
An independent contractor is a self-employed person, that is, a consultant, lawyer, accountant, engineer, or any other person who provides services to other organizations for a fee. Common law principles further define independent contractor status by the method of payment. If a person is on an employer’s payroll and receives a steady pay, clearly that the person is an employee and not an independent contractor.
An independent contractor is free from any control or influence of the client. He can apply his discretion concerning the manner and method of completing the task and whatever the outcome of the task, the independent contractor is responsible for it.
Who is an employee?
An employee is a person who works for the employer on a regular basis, in return for a remuneration called ‘salary’. The terms and conditions of the employment are described under a contract known as a ‘contract of employment’. An employee gives up elements of control and independence, is eligible for certain benefits, and works within the constraint of the workplace.
Why is it important to know a worker’s status?
The distinction between an employee and an independent contractor is very important. Apart from the fact that there are incentives for employing labor, an employer must withhold Federal and State income taxes, Social security/Medicare from employees, but not from independent contractors.
If an individual is working as an independent contractor, the “employer” does not make any of these deductions and the independent contractor must pay his or her own taxes along with income tax on earnings.