Although the term “independent contractor” may seem like just a fancy way to label a worker, there are distinct differences between this type of role and an employment relationship. Each has its own set of rights and expectations.
Main differences
In an employment relationship, the employee is under the employer’s control. The employer may provide the resources to complete the work and the employee must work according to the employer’s schedule. Employers also withhold taxes from the employee’s paycheck and must provide them with a W2 at the end of the year. An employer may also offer the employee health insurance benefits, paid time off, and a retirement plan.
If you are an independent contractor, it means that you are in control of your work and decide when and where to complete it. You must pay your own taxes and will receive a 1099 form each year, you do not receive employee benefits and are not covered by most labor laws. Often, you are also allowed to work for several clients at the same time and are hired for one or more specific projects.
Misclassification
It’s important for both parties to understand the extent of the working relationship.
Your employer could face several penalties for misclassifying you as an independent contractor instead of an employee. These include tax consequences for failing to withhold and legal consequences if you pursue a claim against them for unpaid benefits, back wages, and overtime pay.
They may also be subject to audits by state and federal employment authorities and could face fines.