When a company needs to hire someone to do a job, it has two options. The first is that it can hire an employee. The second is that it can hire an independent contractor. While these parties can usually handle similar tasks, there are some legal differences that exist. Trying to ensure that your company classifies these individuals properly is critical. Misclassification of employees or independent contractors can be costly for companies.
There are several points that you need to think about when you’re trying to determine whether you have an employee or an independent contractor. Typically, the more control you have over the person, the more likely they are an employee.
Typically, independent contractors don’t have direct supervision. They aren’t provided set work hours by the business. The company usually doesn’t provide tools, supplies, equipment or working space for independent contractors. People who are independent contractors usually don’t have to request time off and don’t have to report absences to anyone.
Another key factor is that the independent contractor will pay their own expenses. They negotiate their own pay rate, can refuse offers to work and can hire help. The independent contractor is solely responsible for their own profits and losses. They are free to accept more work as they deem necessary.
One of the primary reasons why employee classification is important is because you have specific obligations to employees, such as providing workers’ compensation coverage, that you don’t have if the person is an independent contractor. This is why you can face severe penalties if you don’t classify employees properly. Working with someone familiar with these classifications can help protect your business.