Luft Tumlin PLLC

Employee or Independent Contractor?

I am often asked about the difference between an “employee” and an “independent contractor”. The Internal Revenue Service (IRS) and the United States Department of Labor (DOL) set guidelines for determining the difference between an employee and an independent contractor. In certain situations, the employer could face penalties for an incorrect classification.

In general, an independent contractor has these qualities:

Performs work that is not necessarily integral to the company’s business

Sets his or her own hours

Works independently, and decides how to complete the work without the company’s input

Personally invests in his or her work product and is personally liable for any losses incurred

Uses his or her own tools and works in his or her own office space

Exercises independent business judgment

Possesses specialized skills

Does not receive any additional training from the company contracting with him or her

In general, in the case of an employee:

He or she creates a product or provides a service that the employer is in the business to provide

The employer sets his or her work hours

The employer supervises direction of the work and requires the worker to perform certain tasks under set guidelines

The employer invests money into the work product and is liable for any losses incurred

He or she uses the employer’s tools and office space

He or she works under the employer’s business judgment

He or she receives training from the employer

These are just guidelines for determining a worker’s appropriate classification, and companies should seek professional counsel to help make the proper determination.

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