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What is the Difference Between an Independent Contractor and an Employee?

Independent contractors typically do not receive benefits including sick pay.
Contractors are not employees under independent contrator laws.
Independent contractors are typically not eligible for benefits such as workers compensation.
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  • Written By: Garry Crystal
  • Edited By: Niki Foster
  • Last Modified Date: 27 November 2014
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One of the major defining factors between an employee and an independent contractor is the amount of control that an employer has. A person can be considered an employee when his employer has a certain level of control and direction over how he works. An independent contractor may provide services for an employer, but the employer has less control over the means and methods of the work achieved.

One example to show the difference between an employee and an independent contractor can be the hours that are worked. An employee may have a set number of hours in which she works, say 9 a.m. to 5 p.m., for which she is paid a certain amount by the hour. The independent contractor, however, can be stated a fixed fee by the employer regardless of how many hours it takes to achieve the task.

The employer has little say in how long a task takes for the independent contractor to complete. The employer also does not have much say in the methods that the independent contractor uses to achieve the task, although there are usually guidelines set out by the employer regarding the work to be done. An employee is usually bound by a lot more rules and regulations regarding the time and methods used to complete a task.

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Financial considerations are another main difference between the employee and the independent contractor. An independent contractor is responsible for paying her own income tax. When a worker is an employee, then the employer is required to pay his personal income tax. The employer must also pay unemployment taxes on the wages that are paid to an employee.

An employer has to provide a form showing the employee's total earnings and the amount that has been withheld from the employee's pay. Independent contractors hold the responsibility of paying their own federal income tax. They also have the responsibility of paying their own self employment tax.

The Internal Revenue Service uses three main factors to define the difference between an employee and an independent contractor. These three factors all rest on the level of control and independence that exists between employer and worker. The three main factors are behavioral control, financial control and type of relationship.

Behavioral control includes the control that an employer has over a worker's methods, as well as the amount of training and instruction that the employer provides. Financial control covers aspects including the worker's investment in the business and how the worker receives his payment. Financial control also covers whether the worker has unreimbursed business expenses.

The type of relationship factor includes written contracts drawn up between both parties and how permanent the relationship between the parties is. This factor also includes whether employee benefits such as insurance and sick pay are available to the worker. These guidelines are often used in compensation court appeals in determining the difference between an employee and an independent contractor.

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anon167406
Post 7

Seek the advice of a lawyer. how did you not know you were not receiving a w2? 1099 means you pay your own taxes. did you have insurance or 401k? was he paying you in form of w2 and giving the irs something else is that what your saying? call the labor dept and report them. Definitely get a lawyer; that's you best course of action.

anon66238
Post 6

I have been working for a friend/company for the past 18 months. He issued me a 1099 for 2008 and is trying to do it again to me and numerous other employees.

He has all these other guys convinced that it's totally legit and he doesn't have to pull taxes even though we are all paid hourly. He furnishes all the materials, most of the tools, etc., etc. supposedly pays workman's comp for all of us.

I estimate and execute 90 percent of all the proposals and contracts. I also provide all the site supervision, material take offs and deliveries and collect customer balances. He juggles a checkbook and works full time in the mill.

He is just holding the fact that the economy stinks over everyone's head and if they raise a stink they will never see any more work. Our agreement was verbal that he and I would split profits on a job by job basis. Of course that has never happened.

I have complete documentation of all the jobs I wrote, sold and collected balances on. He is running this business as a DBA/sole proprietor. When I questioned him, he fired me and kept a couple thousand dollars worth of my tools.

I know of numerous cash jobs he's done. He's cheating on his insurance (comp) not disclosing the true dollar amounts. I just don't know if there's anything I can do about all this, besides walk away, lick my wounds and eat the 40K plus in back wages/profit sharing he owes me? I need some advice. DLP

anon58276
Post 5

Can we 1099 a contractor for 2009 if we have posted invoices to be paid but the check will not be released until January 4th?

coleasmom
Post 4

My husband worked for a "friend" who is the owner of an electric company. My husband is an electrician who is not a private contractor/ he has not supplied the materials or managed the company at all. The last day of work for my husband with his "friend" was 10/29, he quit because he was not being paid. The amount owed to us is upwards of $3000. We keep being told that they are waiting on a check but we don't believe anything is coming. Is there anything I can leverage? Can I contact licensing agencies, irs, unemployment, etc (I don't believe the friend has paid into any of them).... I believe in the end the friend will claim that my husband was subcontracted, what if any rights to we have to get our monies????

anon13398
Post 3

employer has been filing 1099's instead of w-2's and now the irs believes i have been not a employee for almost 24 years and they want 10's of thousands in back taxes..................can anyone help?

markhher
Post 1

What paperwork do i need from an independent contractor to pay them 1099?

Thanks for assistance.

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