What Is An Employee vs. An Independent Contractor

September 07, 2017

Be sure you understand the differences between an employee and an independent contractor. The IRS is pretty specific about the distinctions!

Sometimes it’s hard to determine whether a worker is an employee or an independent contractor. You want to make sure you have each worker classified correctly to avoid raising a red flag with the IRS. Here are a few key distinctions between the two classifications of workers – you can find the complete chart on our website. Still not sure? Check with your accountant or attorney for direction.

An employee is required to comply with the employer’s instructions about when, where, and how to work.

     An independent contractor sets own hours, determines own sequence of work.

An employee works exclusively for the employer.

     An independent contractor can work for multiple employers, services available to the public.

An employee is hired by the employer.

     An independent contractor is self-employed.

An employee has a continuing relationship with the employer.

     An independent contractor works by the job.

An employee is paid a salary, reimbursed for expenses, participates in company’s fringe benefits program.

     An independent contractor receives payment by the job; has opportunity for profit and loss.

Source: American Payroll Association’s Fundamentals of Payroll

Disclaimer: This information is not intended to provide a definitive answer. Always seek guidance from your attorney or accountant when classifying employees. Employers or independent contractors can get a definitive IRS ruling on their worker’s status by completing Form SS-8.