How to Tell if You are an Employee or Independent Contractor

How to Tell if You are an Employee or Independent Contractor

June, 2020

People do not always consider whether they are an employee or an independent contractor, but there are important legal differences between the two. Today, more and more people are entering into temporary or contract work, and the lines between the two types of workers can become blurred. Whether you are classified as an independent contractor or an employee will affect your income, taxes, eligibility for certain benefits, and more. Workers classified as independent contractors usually receive a 1099 tax form each year, while workers classified as employees receive a W-2 tax form each year. Below are a few of the most important distinctions between independent contractors and employees.

Why it Matters

The Fair Labor Standards Act (FLSA) outlines certain rights for employees. For example, employees are guaranteed a certain minimum wage, as well as overtime pay when they work over 40 hours in one work week. Independent contractors on the other hand are not employees and therefore, have no right to overtime or minimum wage under federal or state laws. They typically enter into a contract with a company that determines the amount of pay for the services they provide. Proper classification is also important because certain benefits are available to employees, but not necessarily to independent contractors. The contract between a company and the independent contractor determines the benefits received.

Employees vs. Independent Contractors 

There is no exact rule to determine whether a worker is an employee or an independent contractor. However, the IRS has factors to help determine the proper classification. Some of the most common factors that the IRS and courts consider include:

  • The working relationship: If a supervisor or manager controls what type of work a person does and the manner in which they do it, it may signal an employer/employee relationship. If on the other hand, the worker simply has to deliver the end product or service, but can set their own hours and determine for themselves how the work will be accomplished, they are more likely to be an independent contractor.
  • Ownership: If the company provides the worker with the tools and equipment needed to do the job, it may be indicative of an employment relationship. When the worker provides their own tools and equipment, such as cleaning solutions, software, machinery, or other tools, they may be an independent contractor. However, some workers such as mechanics and chefs use their own tools, but are properly classified as an employee.
  • Opportunity for profit and risk of loss: In an employer/employee relationship, the employer is the primary party at risk for financial loss and the main party who will profit when business is good. Employees will usually continue to be paid regardless of the amount of profit or loss the business incurs. Independent contractors work for themselves and have their own opportunity for profit and risk of loss. For example, if the tools and resources required to complete an assignment are more expensive than the contractor projected, they may earn a lower profit than expected. If a project was finished more quickly than the contractor anticipated and with fewer resources, the independent contractor might earn a greater profit than expected.

Our Ohio Employment Lawyers can Help with Your Misclassification

If you feel as though your employer has misclassified you our Columbus employment lawyers at Marshall & Forman, LLC are here to help. We can help determine if you may be classified correctly, and if not, work to help you obtain wages lost and pursue other available legal remedies. Call us today or contact us online so we can discuss whether you may have a potential case.