Independent Contractor or Employee

 
· What is the difference between an independent contractor and an employee?

In a very general way, an independent contractor is a self-employed person who operates her own business and is able to carry out that business independently of the other businesses with whom she contracts – her customers. An employee is a person who is not in business for himself but works in a business owned by someone else and is dependent on that business for the terms and conditions of his employment and for his continued employment.

· What difference does this distinction between independent contractor and employee make?

There are many legal protections, liabilities and relationships vary depending on whether the working relationship involved is between an employer and employee or rather between an independent contractor and a customer of that contractor’s services.

· What difference does this distinction between independent contractor and employee make with respect to employment protections?

Specifically with regard to employment rights, most statutory employment protections apply to employers and employees but do not apply to independent contractors. For example the requirements the state and federal minimum wage laws and federal overtime laws protect only employees who are employed by an employer. The Texas Payday Law protects only an employee who is employed by an employer. None of these laws protect an independent contractor – even if the independent contractor was paid less than minimum wage or overtime or was not paid at all for her work.

· What difference does this distinction between independent contractor and employee make with regard to employment benefits?

The other reason the distinction matters is that most employment-related social safety-net benefit programs are set up mainly to protect employees. Employees for example, are covered by workers compensation and unemployment insurance laws, while independent contractors are not. Employers are required to pay half of the FICA tax contributions for their employees (7.65% of gross wages), while independent contractors have to pay the entire FICA tax themselves (15.3% of gross wages). Similarly private employment benefits, such as health insurance or retirement plans, are much more likely to be available to employees and much more rarely to independent contractors especially if they are low-income.

· Why do we guarantee fewer employment protections and benefits for independent contractors than employees?

The theory is that independent contractors are owners and operators of their own businesses and therefore they have enough economic power to drive a hard bargain and take care of themselves. So they don’t need the protections of the law the way employees do.

· Why has it become so difficult to determine who is an independent contractor and who is an employee?

The law defining the difference has never been completely clear cut. There have always been some variations in the definition of independent contractor and employee from one law to the next and variations from one court ruling to the next. But in recent years more and more businesses have begun to reclassify people who formerly were considered employees to now consider them independent contractors. Some businesses have seen this as a way to try to escape responsibility for complying with employment laws (for example overtime laws) and for shifting costs from the business onto the worker (for example FICA taxes and workers compensation premiums).

· If a worker is called an “independent contractor” does that mean they don’t have the employment rights of an employee?

Not necessarily. Just labeling a worker as an “independent contractor” does not by itself mean that he is an independent contractor. Even if he believes he is an “independent contractor,” that may only be because that is what he has been told. It is necessary to apply the legal test to determine whether he really is an independent contractor or an employee.

· So what is the legal test for determining who is an employee and who is an independent contractor?

This is a little complicated because somewhat different tests are used by different agencies and different laws. But most of the tests are similar and there are some common rules of thumb that help to separate independent contractors from employees. One version of the test that is helpful is the test used by the Texas Workforce Commission under the Texas Payday Law. This test spells out 20 questions that clarify who is an employee and who is an independent contractor.
 
Authored By: Partnership for Legal Access Information texaslawhelp.org
 
– The Business Team
Scott | Josh | Jeremy
 

The Allen Firm, PC
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