What's the Difference Between an Employee and Contractor?

When a company hires you to perform a service, you may forget to ask about the classification of your role within the company. But your classification can influence what tasks you're expected to perform, what costs you're personally responsible for, and what your employer is responsible for giving you.

Do you think you're losing some benefits, coverage, or pay because of your employee classification? Keep reading to learn about the difference between an employee and a contractor and what difference it makes to you.

What Makes an Employee Unique?

An employee is under a lot of restrictions that independent contractors do not face. For example, employers have the right to dictate when and where an employee works and how they accomplish their tasks. Employers also usually agree on a salary or hourly rate for the work an employee performs, and the timeframe is understood by both sides to be indefinite until something changes.

In certain situations, the government does entitle employees to certain benefits, such as insurance and vacation or sick days. However, the main issue in classifying a worker as an employee is that it puts financial accountability onto the employer, who will have to calculate and withhold taxes from each paycheck. Employers also agree to pay part of those taxes.

What Makes a Contractor Unique?

Contractors enjoy more freedom for their work, but with strings attached. Employers only control each project's result and usually do not dictate how, when, or where the contractor works, save general guidelines and deadlines. The contractor's expenses are their own, with no reimbursement, and they work for and earn money by the projects they complete, not the time they use to do so. 

Contractors are responsible for their own taxes as well, so they may have more paperwork to complete than employees in that regard. The IRS considers contractors to be self-employed, which incurs higher tax rates than an employee will experience. A contractor also does not receive employee benefits like vacation time, insurance coverage, or severance pay. 

Why Does This Difference Matter?

Suppose your employer misclassifies you as an independent contractor rather than an employee. In that case, they may be able to use their resources in other places rather than pay their share of income taxes. Alternatively, if they misclassify you as an employee rather than an independent contractor, they'll have the power to dictate your work when they should only have control over the results.

An employer may not be trying to get around the law when they misclassify their employees. Instead, the business managers may be looking for ways to redirect the company's resources or get further ahead in other areas. Sadly, low-tier workers often lose the benefits they deserve when their employers take these measures, and they have to seek legal action against a company they work for to get their rightful benefits back. 

One of the most common problem is that employers misclassifies people as independent contractors to avoid paying overtime compensation! If this employer dictates a large amount of control over your working environment, you may be misclassified and may entitled to overtime compensation. 

If you think that your employer has misclassified you, you can take steps to correct this issue. The IRS provides tools on their website to help you determine your classification, and they may be able to rectify the problem with your company. However, you may have to get legal help to receive the compensation you deserve, even if your employer receives disciplinary measures. 

If you need legal representation to fight to get you the compensation you seek for all of your workplace disputes and wrongful actions by your employer, then contact Allen D. Arnold Attorney at Law . Our law firm focuses on employer/employee conflicts, and we will work for you to find a satisfactory solution. Get in touch today to solve your workplace classification problems.

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