Tags: Business Law

What exactly is an employee? What is an independent contractor? And how do we tell the difference? Why should we care?

The distinction between the two is important. A worker classified as an employee typically requires a company to take on more responsibility, more attention to detail, and ultimately more liability. Therefore, it is vital companies have a general understanding of two things: (1) in general, how to tell an employee from and independent contractor and (2) the consequences of the distinction.  

Employee vs. Independent Contractor

Let us first explore the differences an employee vs. independent contractor. For a general rule of thumb, the more control an employer has over a worker, the higher chance such worker is an employee[1]. This IRS Publication is a good reference. There are three main (amongst others) factors to look at when determining whether someone is an employee or an independent contractor looking at employer “control factors”:

  1. Behavioral Control Factors
  • How are day to day activities delegated? Is the worker creating his or her own project and schedule? Or, does the employee “punch a clock”?
  1. Financial Control Factors
  • How are payments made, on regular bi-weekly intervals? Or a onetime payment? An employee is going to be on a perpetual payment system, while an independent contractor is more likely to be paid on less frequent intervals from the same employer.
  1. Relationship Factors
  • What type of contract has been signed or agreed upon between the parties? Is there one at all? How permeant is the relationship? Again, a worker who, for the foreseeable future, will be providing services directly to an employer is more typical of an employee than that of an independent contractor.

So what?

One major difference is liability of an employer for the actions of the worker. Generally, employers are responsible for actions of an employee under company direction or control at the time of an incident.[2] Companies with employees are also required to without federal and state taxes, social security payments, and other such financial issues.

You may be tempted to avoid all of this, and strictly adhere to hiring independent contractors. However, it is important to note, and what is the crux of this blog, just because you call someone an independent contractor, does not mean they are.

If you have made it to this point in the blog, your head is probably spinning a bit right now, and this blog only touches the tip of the iceberg when it comes to this topic. Therefore, if you have any specific questions concerning you and your company, please reach out to a qualified attorney. It is vital to get head of issues like this. Our Sioux City attorneys, Sioux Falls attorneys, or Omaha attorneys are available to help with these issues.

[1] Ernster v. Luxco, Inc., 596 F.3d 1000, 1004 (8th Cir. 2010) (“the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring or paying assistants; whether work is part of the regular business of the hiring party; whether the hiring party is in business; the provisions of employee benefits; and the tax treatment of the hired party.”)  

[2] Think of a worker driving a company truck with the company logo on the side, who has been paid on a consistently bi-weekly basis for a year and a half. Said worker runs through a stop sign on his way delivering company goods and gets into a car accident. Chances are, the company who the worker is driving for, not the worker individually, will be liable for the monetary damages caused by the accident.

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