Some companies have employees and independent contractors working for them. There are specific differences between these two classifications that are important because employers who don’t follow the divisions can actually misclassify individuals, which is a very serious matter.
One of the reasons that the classification of workers is so important is because of taxes. When a person is considered an employee, the employer takes specific deductions out of the paycheck. This includes Social Security, Medicare and income taxes for federal, state and local withholding. In the case of an independent contractor, there aren’t any taxes withheld. Additionally, independent contractors don’t’ have the same protections of labor and employment laws that employees have.
The amount of control that the employer has over the person is one of the distinguishing characteristics. If the employer controls what and how the worker does the job, they are likely an employee. There is also the matter of where and when the person works. Typically, employers have very little control over independent contractors, but they have great control over employees.
For the purpose of taxes, the employee will receive a W-2 at the end of the year that reports all money made for the year, as well as deductions. The independent contractor will get a Form 1099 for any money made that is in excess of $600 for the calendar year.
As you can see, there are some major differences between these classifications. People who think they aren’t classified correctly can take legal action to get the classification corrected. You should ensure that your company has policies in place to ensure proper classification.