Correctly classifying the status of an independent contractor vs employee
is equally important to both employer and contractor.
There are financial benefits to both: The employer is not responsible for the usual costs associated with employees, such as unemployment, health or pension contributions and the independent contractor can deduct reasonable business expenses from tax.
Because of the financial implications, the tax man must be satisfied that the contractor is indeed self employed.
It's all about who is in control of the worker.
By definition the term "independent" signifies the absence of control by a third party - in this case, an employer.
We supply a variety of free contract templates including and independent contractor agreement which you can access from our main Independent Contractor page.
An employee is controlled by the company and the employer directs how, when or where the work must be done.
Even if an employee works completely without supervision, it does not mean that he can be classified as an independent contractor!
The company still has the right to control such a worker and whether they choose to exercise that right or not does not change the status of a worker.
Conversely, an independent contractor may receive instructions on the result or end product expected (or how to improve the result) but they will self manage the how, when and where.
The fact that a worker may be supplying his own tools to perform a job does not necessarily qualify him as a contractor. It is rather the extent of the investment in tools that can be a contributing factor to be classified as a contractor. More about this below.
If a company controls the earnings, expenses and statutory deductions of a worker, then such a worker will be classified as an employee.
The following factors will indicate the extent to which the contractor controls his own finances:
Sidebar: An independent contractor or a business consultant may advise on business / marketing strategies, investments etc. in order to improve the business and maximise profits, but the business decisions are made by the company. Therefore such a consultant will not be seen as part of the management team and will not be an employee.
Employees increasingly are enabled or allowed to work remotely i.e. away from the actual workplace. And in this context we do not mean sales agents or people who's work is by nature offsite e.g. surveyors or landscape architects etc. In this context we mean people who could/would normally perform their work within an employer's office space or studio.
Such a worker may well then decide when to start or finish work, take breaks to fetch a child from school, determine his/her dresscode. But evaluation (e.g. sales) and monitoring (e.g. timesheets) will still be done by the company and the salary payments and statutory deductions will still be under the company's control.
This person will then be classified as en employee and not an independent contractor.
No single factor as outlined above will define the status of an independent contractor vs employee but on balance the evidence of control and independence of the contractor can be determined.
If as an employer you are not totally convinced of the status of an independent contractor, you could have a look at the fixed-term employments contract listed on our Employment Contracts page, which may be more suitable.
In most cases it is relatively easy to make the distinction between an independent contractor vs employee but it is always advisable to consult with your labor attorney as to industry specific restrictions which may apply.
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