Business | Franchise | Employment | Litigation

What is the Difference Between Employees and Independent Contractors?


Knowing the difference when it comes to employees vs. independent contractors can affect finances for your business, and Human Resource policies. The main benefit of using a contractor is that the business can avoid paying employment tax. We have seen, however, that this condition does not apply to all circumstances. The IRS and employees can file suit on the grounds of discrimination.

As a business owner, there are many tasks you will delegate. It is impossible for you to expect that you can handle every aspect of your business by yourself. You are probably going to need to hire others to do work for you, and in fact, courts encourage it.

That being said, who you hire to do work for you has great implications beyond simple efficiency. There are two categories of people you will hire as a business owner: independent contractors and agents. For you, it may simply be a matter of delegation. For courts and from a legal perspective, however, there are other implications involved.

The Difference Between Agents and Independent Contractors: Know the Significance

Employees you hire that work under your command will fall into the category of agents. Hired help for either temporary or recurring tasks may fall into the category of independent contractors. In essence, a court will look to the amount of control you exert over the person you have hired. The control determines whether or not the person you hired is an independent contractor or agent.

Suppose you outsource some work to another company or an individual that specializes in that line of work or task. Your hiring manager uses a website like Upwork or Fiver and gives a task to an individual related to your business. That hired individual will most likely be considered an independent contractor.

This applies especially if you leave a great amount of discretion up to that individual. Have you hired somebody on a recurring basis or have them working under your control with less discretion? Courts will most likely believe those individuals are agents.

What Is The Significance?

The significance of whether or not somebody you hired is an independent contractor or an agent cannot be understated. It could mean the difference between being liable for the action of the person you hired, or not having any liability at all.

If you hired an agent, a court is much more likely to find you liable for his or her actions. Courts view agents as an extension of you. If the work was not delegated, you yourself would have committed the wrongdoing. Thus, the owner or manager has to pay the consequences.

Meanwhile, if the individual is considered an independent contractor, you will not be found liable. Courts understand that independent contractors are known to have a wide amount of discretion.

Certain contractors make decisions that are outside the control or knowledge of the employer. It would be unjust to hold an unknowledgeable employer liable for an individual’s actions in specific contexts. Namely, employers are not liable when they could have no knowledge of what contractors may be doing during the course of completing a particular task.

As a business owner, you should pay great attention to these distinctions, and weigh the advantages and disadvantages of hiring either an independent contractor or agent.

Degrees Of Control

There are several factors that determine if your contractor is an employee. You need to assess and ensure that you are not overstepping your boundaries. If you control how they perform their work, you cannot pay them as independent contractors, as they are employees that lack autonomy and rely on your direction.

Another distinguishing factor between independent contractors and employees is the hours they work. Many contractors work on their own schedule, and at most you are giving them deadlines by which to complete projects. While you can ask workers to be in contact within a window of time, you cannot schedule them for shifts.

The method of operation is another degree of control. This can refer to the location where the work is done, the tools used, and the days on which projects are completed. If you insist that someone comes to the office for work and uses specific programs to complete projects, then they are not an independent contractor, but an employee instead.

Tools such as Slack provide a grey area, given both employees and independent contractors use them. Even so, you can estimate if someone is lacking in control by determining their work requirements. Review your written agreements and contracts to assess these requirements.

Improve Your Business In The Long-Term With Trembly Law

Trembly Law is ready to help you protect your hiring practices and interests in court. Our team of specialists is well-versed in helping businesses with written contracts and more, and we’ll ensure that your business is compliant with federal and state law.

Having the insights and knowledge of an experienced legal team can make a difference. Contact the Trembly Law Firm today to schedule a consultation. We’ll help you refine the types of relationships you have with your employees, on a professional and legal scale.

Stronger Business Begins with Stronger Contracts

Stronger Contracts

Download our free resource today for practical tips that will make your contracts even stronger. Specifically, we cover five clauses that MUST be present in each contract – which could save you a significant amount of money and time in the event of a legal dispute.

Miami's Preeminent Business Firm