Legal Differences between a Contractor & an Employee
How to Protect Your Working Life
The legal difference between a contractor and an employee can have a major impact on how you do business, no matter whether you are a principal, contractor, employer, or employee. The classification of a working relationship impacts the obligations the parties have to one another, the means and methods of completing the work, the obligation to provide certain types of insurance, including workers’ compensation, and the way taxes are calculated and paid.
The main factor in determining whether or not a working relationship is an employer-employee relationship or a principal-contractor relationship is the degree of control the person requesting and paying for the work has over the person who is performing the work.
Contractors generally have a lot more freedom, but, in return for that freedom, the other party does not owe them the same duties one might owe an employee.
What Defines a Contractor?
You are probably working as or with a contractor if the following applies to the party performing the work:
- Payment is received for results achieved
- Provides all or most of the materials
- Can delegate at will or as provided in a written agreement
- Is free to accept or refuse work
- Is in a position to profit or suffer loss
Contractors usually pay their own taxes, cover their own insurance, and are responsible for the welfare of anyone who works for them.
What Defines an Employee?
You are probably working as or with an employee if the following applies to the party performing the work:
- Payment received is for time worked
- Receives paid leave that governs sick or vacation time
- Is not responsible for providing materials or equipment
- Agrees to provide his or her personal services
- Takes no commercial risk without direction
- May not profit nor will suffer loss
The differences between contractors and employers are, for the most part, determined by the nature of the working relationship and the rules in the jurisdiction where the work is performed or the parties are based.
If you’re unsure what your working relationship is, you may want to consult a Walnut Creek employment attorney.
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