What's the Difference Between an Independent Contractor and an Employee?
A business might pay an independent contractor and an employee to perform the same work, but there are several important differences between the two.
Is it Better to Be an Independent Contractor or an Employee?
Generally, it’s more beneficial to be employed as an employee rather than an independent contractor. As an employee, there are more laws protecting taxes, minimum wage, overtime, employee benefits, and more.
“Independent contractor” situations often trigger overtime compensation claims and occasionally minimum wage claims. Additionally, ERISA claims can arise if the “contractors” aren’t allowed to participate in the company’s employee benefit plans.
Why Do Employers Want You to be an Independent Contractor?
For many employers, it’s much cheaper to classify an employee as an independent contractor rather than an employee.
Three of the biggest reasons employers may misclassify an employee as an independent contractor are to avoid paying:
- Payroll Taxes – Employers do not have to pay taxes on independent contractors.
- Minimum Wage Overtime – Minimum wage and overtime laws do not apply to independent contractors
- Employee Benefits – Employers do not have to offer health insurance, life insurance, disability benefits, and other employee benefits to independent contractors