Employee or Contractor? 5 Ways to (Legally) Tell the Difference

Earlier this month, the Internal Revenue Service joined the Department of Labor and state agencies in cracking down on employers that misclassify employees as independent contractors, leaving business owners and hiring managers scrambling to reevaluate their contractor relationships and ensure that they are complying with the law.

To help sort through the confusion, here are five characteristics of independent contractors, from lawyers and law firms on JD Supra:

1. Independent contractors “generally do not get … employee benefits, such as insurance, a pension plan, vacation pay, or sick pay.” (From He’s not my employee, he’s an independent contractor – or is he? by Fein, Such, Kahn & Shepard, P.C.)

2. Independent contractors “should not be working full-time at your business, using your equipment and supplies, and doing the same work as your W-2 employees.” (From Contractor or Employee? by Davis Wright Tremaine LLP)

3. Independent contractors require “a written agreement … specifying the nature of the relationship, including each party’s duties and responsibilities with respect to taxes.” (From Can You Withstand an Employment Tax Audit? by Ronald Adams)

4. Independent contractors “[are] retained for a specific project, … have other clients, … [and] maintain independent activities.” (From There is no such thing as a “1099 employee” by the Law Office of Alexander J. Davie)

5. An independent contractor “purchases his tools, has a high degree of skill, can make or lose money based on how much time he invests in the job, works … without the customer’s direction, and is not integral to the business’ operations.” (From FedEx Driver Found to be Employee – Not Independent Contractor by Williams Kastner)

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