Many people are unsure what the different classifications of employee verus independent contractor mean. So what is an employee? What is an independent contractor? What's the difference between the two? And why does it matter?
Employee versus independent contractor: what's the difference?
People often use worker and employee to mean the same thing. But this isn't actually correct. Some workers are employees, others are independent contractors. So what's the difference? It's actually a fairly complicated legal question. Under both state and federal law, courts look at all kinds of factors to determine whether someone is an employee or an independent contractor.
For simplicity's sake, someone is generally an employee when their employer exercises a lot of control over their work. For example, someone that goes to their company's place of business everyday, wears their company provided uniform, uses company equipment, and does what the company tells them to do all day is an employee. Employees work directly for the employer and the employer pays them and provides whatever benefits the employee might get. At least until recently, this has been the dominant working arrangement in developed economies.
Conversely, an independent contractor is a worker that is not an employee. This traditionally meant someone who contracted to perform a certain task. For example, the plumber you hire to fix your leaky faucet is an independent contractor. You haven't hired her as employee. You've agreed to pay her to perform a specific task in exchange for a set fee. Once she's finished, you pay her and you both go your separate ways.
Why the difference matters
Employee versus independent contractor is not simply a legal distinction that exists only on paper. Whether someone is an employee or independent contractor has important real world consequences. First, employees are often entitled to certain benefits, such as health insurance or retirement plans. Independent contractors are not.
Second, many labor and employment regulations apply only to employees. Most state and federal wage and hour laws don't apply to independent contractors. For example, you don't need to pay that plumber you hired minimum wage or overtime. Likewise, the state and federal laws prohibiting employment discrimination and workplace harassment generally do not apply to independent contractors. So if you're classified as independent contractor, you may not be to sue if you're discriminated against.
Third, and finally, having employees requires employers to provide things like workers' compensation coverage. Conversely, a company does not need to provide workers' compensation coverage for its independent contractors. Likewise, for things like unemployment insurance and social security.
The changing landscape
Unsurprisingly, the use of independent contractors is on the rise. Companies see it as a way to cut costs without cutting vital labor. But this also leads to abuse. Companies often hire people as independent contractors even when they should technically be employees under the law. Of course, misclassifying employees as independent contractors is unlawful and companies can be subject to penalties for doing so. But, because most people wont sue, companies usually get away with it.
Naturally, the increasing use of independent contractors has caused some push back. California recently passed a law cracking down on the use of independent contractors. Other states are also considering similar laws. These laws target workers in the gig economy, such as Uber or Lyft drivers, but will affect other workers as well.
If you believe you are misclassified as independent contractor, contact the Khadder Law Firm today for a free consultation.
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