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What’s the Difference Between an Independent Contractor and an Employee?

The Harding Group Independent Contractor Employee

It’s critical to know the difference between an independent contractor and an employee for legal purposes.

These days, it seems that you can’t go two minutes on a job board without finding a posting that’s searching for a contractor instead of an employee (and not the type that remodels your kitchen). Independent contractors, also sometimes called 1099-employees or freelancers, are individuals who do work for a business without being an actual employee. While there are notable benefits to the arrangement on both sides, the most obvious is that the employer doesn’t have to pay their share of employment taxes for that person and also doesn’t have to offer benefits or guarantee hours. This can be a massive benefit, especially for small businesses that operate on a shoestring, but it can also entice some to reclassify actual employees into independent contractors when they’re not. Knowing the difference is important for both employees (you should know what you’re actually getting into) and employers (falsely classifying employees as contractors is a mistake that can land you in a heap of trouble).

Contractors are Self-Employed

The biggest difference between an employee and a contractor is that the business employs the employee and the contractor employs themself. Since the contractor is self-employed, the stipulations on what they have to do for the company (usually laid out on a project-by-project basis) and the company resources they have access to should be very precise. Generally, freelancers will only have access to the company intel that they need for their specific project, and they will use their own tools and materials to do the work (and they usually need to pay for their own travel and similar expenses).

Deadlines Not Schedules

In almost all cases, if you are setting specific hours of work, requiring the worker to clock in and out, and/or mandating that the work be done in your specific location, you probably have an employee, not a contractor. There are some exceptions to these, but generally, they hold true, especially if the exceptions are your norm. Requiring your freelance writer to cover a specific event where it is happening for a story is different than requiring your secretary to work from your office, 9-5 Monday through Friday and clock out for lunch. Generally, contractors have a deliverable with a deadline, not a prescribed schedule.

Expectations of Loyalty

Your expectations of the worker and there’s of you are also different for employees and contractors. When most businesses hire an employee, they expect that person to stick around for a while and have a vested interest in the ongoing well-being of the business. Consequently, the business invests in the training, health, wellness, and wellbeing of the employee. Contractors don’t have any expectation of loyalty. While they can’t break an NDA or similar agreement, they likely are working for more than one company at a time and constantly scanning for their next project. They may finish the current project and simply move on, just as the employer might move on to another freelancer.

Trust the Professionals at the Harding Group

Unlike other accounting firms, The Harding Group, located in Annapolis, MD, will never charge you for consultations and strive for open communication with our clients.

Are you interested in business advising, tax preparation, bookkeeping and accounting, payroll services, training + support for QuickBooks, or retirement planning? We have the necessary expertise and years of proven results to help.

We gladly serve clients in Annapolis, Anne Arundel County, Baltimore, Severna Park, and Columbia. If you are ready to take the stress out of tax time, contact us online or give us a call at (410) 573-9991 for a free consultation. Follow us on Facebook, Twitter, YouTube, and LinkedIn for more tax tips.

This entry was posted on Friday, September 2nd, 2022 at 10:55 am. Both comments and pings are currently closed.

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