As you look for someone to perform tasks for your business, or search out a job, it’s important to understand the legal difference in an employee and an independent contractor. Generally, freelancers are independent contractors, but it depends on several factors.
Who’s the Boss?
According to the Internal Revenue Service, you are generally an independent contractor if the company you work for only controls/directs the result of the work, and not the means or method by which you accomplish it. The IRS states that someone is an employee if he performs a task for a company and that company controls how and when it is done.
How Many Clients?
Another key factor that determines if you’re an independent contractor is if you work for several different individuals or companies at once. For example, as a freelance writer, I write articles and blogs for four different companies (or clients) because I’m an independent contractor. If a company were to assert in our contract that I could only work for that company, then I would have the designation of employee.
Employees typically report to work during specified hours and meet standards for working a set number of hours each day/week. They also know that, if they don’t show up to work, then they run the risk of losing their job.
Independent contractors, however, tend to make their own hours. They may have deadlines for accomplishing the work, but the client doesn’t indicate when they put the time in prior to the deadline in order to accomplish that goal. Additionally, some independent contractors may have to put in a certain number of hours per week, but how they divide those hours up during the week is up to them. There is also very little risk for an independent contractor if she misses a day of work, as long as deadlines and quotas are met.
It’s important to know that, when you are someone’s employee, the work you produce is the legal property of your employer, not you. Therefore, if you come up with a great invention for your employer, you may get a hefty bonus, but have no legal rights to the invention itself.
However, as an independent contractor the work you produce is your own – that is, unless it says in your contract that the company you work for retains the rights to the work you produce. This is common concerning freelance writers. Some companies allow you to retain the rights to the work you produce, giving you liberty to reuse it if you please (sometimes under some restrictions). Others, even if they give you a by-line, may have in your contract that the content you produce for that company is no longer your own. Be sure to read contracts closely when performing freelance jobs so you know where you stand.
Other Determining Factors
When circumstances arise in which the court system needs to determine the status of a worker, the court poses several questions
Legal Obligations for Employers
Companies who designate someone as an independent contractor for their company incorrectly (i.e. that person is actually an employee) can face fines for failing to pay employment tax, on top of a hefty tax bill at the end of the year. So, wherever you stand, make sure your tax documents have it right.
Having employees and independent contractors each maintain benefits, depending on your business situation. As far as career choices go, you always have more options available to you as an independent contractor, you just don’t have the health benefits that an employee does. The choice is up to you.
All content is originally authored by Michelle Cramer, although portions of this article were first posted on LinktoPro.