Employee or Independent Contractor: Which Are You?

Government figures estimate 25-30% of all employees are misclassified as independent contractors, which is why workers need to understand the difference between working as an employee and an independent contractor.

Part of the difference boils down to who is liable for paying a worker and who is liable for withholding federal income tax, Social Security and Medicare taxes and federal unemployment tax.

According to the Internal Revenue Service, an employee is defined by meeting three primary factors:

Behavioral Control: The company has control over all aspects of the individual and how s/he performs the job, such as when, where and how the work is performed.
Financial Control: The company has control over all financial-based business aspects such as how and when the worker is paid, whether or not expenses are reimbursed, the type and cost of benefit packages and any other financial matters concerning the job.
Type of Relationship: The work being performed is a key aspect of the business’s daily operations and the working relationship between the individual and the company extends beyond the duration of a particular job.

In order to be legally classified as an independent contractor, a worker must:

Be free from the right of direction or control in performing work – under contract of service and in fact.
Be engaged in an independently established trade, occupation, profession or business.

Why is correct classification as an employee or an independent contractor important?

Misclassified employees are often denied access to critical benefits and protections they are entitled to such as:

Minimum wage
Overtime compensation
Family and medical leave
Unemployment insurance
Safe workplaces

Learn more about differences between employees and independent contractors: Fact Sheet 13: Am I an Employee? Employment Relationship Under the Fair Labor Standards Act (FLSA)

If you are unsure about your status as an employee or independent contractor, or think you are misclassified, contact the Idaho Department of Labor at (208) 332-3579.