Are Your Independent Contractors Really Independent Contractors? Understanding the Differences Between ICs and Employees
The world of employment is wildly different than it was in generations past. Instead of working for one company for the duration of their career and collecting a pension after 40 years of service, people today have tons of options. They may change jobs every few years, completely alter their career path at will, or rely on contracting work to pay the bills. The difference between employees and independent contractors is significant, and misclassifying those who work for your company can have severe financial and legal consequences. It’s crucial to consult an employment advising attorney in Southern California who can help protect your company from costly mistakes. Find out more by calling the Law Offices of Robin D. Perry & Associates at 562-216-2944.
Why do some businesses misclassify employees as independent contractors? They generally do so for their own benefit. When a business utilizes independent contractors in lieu of employees, they avoid paying payroll taxes, minimum wage, and overtime pay. They also do not have to provide them with meal breaks or limit their work hours. It may also lower the cost of their unemployment insurance and workers’ compensation insurance. But when independent contractors are actually employees, businesses face significant penalties. Consider these factors when determining how a worker should actually be classified.
Control and Autonomy
A significant factor in what defines an independent contractor is the amount of control they have over their work. Independent contractors are largely allowed to work in the way they choose. They can also choose when they work, where they work, and which tools they use—and those tools are generally their own. Consider, for example, a freelance website designer. The client is paying for a completed website, not paying an hourly employee for their work on the website. The freelancer can work on the website at 12:00 P.M. or midnight, and it doesn’t matter as long as they produce the finished product.
On the other hand, employees have strict limitations on their work. They generally work a set schedule, are told where they can work, use the employer’s tools to complete their work, and report to a supervisor as part of their work. There is no autonomy in this setup.
Pay Structure
Pay structure differs between independent contractors and employees. Employees generally receive an annual salary or hourly pay. Additionally, they are entitled to at least minimum wage and overtime pay. The employer withholds Social Security and Medicare taxes, as well as state and federal taxes. Independent contractors are responsible for all of these payments on their own. Independent contractors generally charge per project or per milestone in a project. They set their own rates.
Employers who misclassify employees often still pay their “independent contractors” an hourly wage. However, they deny them overtime pay and other benefits employees are entitled to.
Relationship With the Company
The nature of the relationship between the company and its workers differs based on whether the workers are independent contractors or employees. Independent contractors are not exclusively bound to one company; they are free to take on additional clients or customers as they choose. However, employees are expected to work only for their employer. If they do have additional jobs, that work can generally not be for a direct competitor.
The duration of work may also differ between ICs and employees. Independent contractors are typically retained for a specific job or project, and their relationship with the company ends when that project is over. Employees may be hired on a temporary or seasonal basis, but most are employed on an ongoing basis.
How the Services Relate to the Business
In many situations, an independent contractor’s work is not the work that the company generally does. Using the website example above, the independent contractor is creating the website so the company can more easily advertise its non-website building services to the public. Those who work within the main industry that the company is in are more likely to be employees.
Note, though, that this is not a hard and fast rule. There are companies that offer specific services and exclusively use independent contractors to offer those services. In that situation, you need to look at the other factors to figure out a worker’s classification.
Reach Out to the Law Offices of Robin D. Perry & Associates for Help With Your Business
With our employment advising services, you can rest easy knowing that you are protecting your company from every angle and planning for its future. Set up a consultation now by getting in touch online or calling us at 562-216-2944.
Attorney Robin D. Perry has been part of the Long Beach Community for over 25 years handling business litigation, employment litigation and advising, criminal defense, personal injury and code enforcement defense for businesses.
