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Employees vs. Independent Contractors: Differences and What They Mean for Your Business

In this hyper-connected, globalized economy and workforce, there have been massive changes to people’s money-making habits. It is extremely rare these days for one worker to stay at one job for more than a decade. Workers’ starting and ending their career with the same company happens far less frequently than in years’ past. This newfound mobility and flexibility has brought about the rise of the “gig economy,” in which workers have freedom to pursue side projects – often in lieu of a fixed, stable job. 

These conditions have also presented new challenges to workers and employers. This has manifested itself through the debate over worker classification. Generally, workers are considered either employees or independent contractors. This blog will explain some major differences between these two classifications and what impact the distinction has on employers.

How Can You Tell Which Classification a Worker Belongs To?

There are both federal and state rules for determining the proper classification of the worker being considered. Federally, the IRS sets the rules for this determination, compelling employers to consider:

  • The amount of control exerted by the company over workers. Employers who set hours for their workers, train them how to do work-related tasks, and instruct them how to complete the tasks are likely to be dealing with employees. 
  • Financial control. Workers who are paid on a regular schedule, like weekly, bi-weekly, or monthly, are usually designated as employees. On the other hand, independent contractors are often compensated on a per-job or per-project basis. Another key point here is that independent contractors use their own equipment and licensing during completion of a project. 
  • Nature of the working relationship between employer and worker. One aspect of this consideration is the length of time that a worker is compensated by his or her employer. Long-term relationships with an employer support the assertion that a worker is an employee. Also, whether or not the worker in question performs work that is central to a company impacts classification. 

The state of Florida has its own tests to determine the proper classification of a worker. State and federal rules heavily overlap, but Florida does include some other test prongs, including:

  • The level of skill required to complete work-related tasks
  • Whether the employer is an individual or registered business

What Are Employees Entitled To (that Independent Contractors Aren’t?)

Employees enjoy a number of benefits that aren’t extended to independent contractors. For one, they are eligible for overtime pay and unemployment benefits. Additionally, there are certain anti-discrimination protections that apply only to employees. Workers’ compensation is also not something that can be used by independent contractors. 

Penalties for Misclassification

At the heart of the worker classification issue for employers is the issue of taxes. Employers must pay FICA taxes (Social Security and Medicare) on each employee’s paycheck, as well as their own portion. This is not an obligation for independent contractors, as they will handle their tax obligations on their own (using Form 1099 instead of Form W-2). In Florida, willful misclassification of a worker will earn you a felony charge. Employers must also pay back taxes that should have been withheld from paychecks, in addition to IRS penalties. 

Although it is more of a hassle to hire employees than rely on independent contractors, misclassification of workers can be extremely costly for employers. Hiring a knowledgeable Florida business lawyer is the best way to ensure you are in compliance with state and federal rules. The Law Office of Tania Sayegh Bartolini, P.A. is well-equipped to provide you with professional and effective legal counsel; call the firm today at 954-368-4050.

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