Employee Vs. Independent Contractor: Understanding Why The Difference Matters

Business Lawyers With Decades of Experience

Serving the Bonney Lake, Gig Harbor, Lakewood, Puyallup, and University Place Areas in Washington

Federal overtime standards, state paid leave mandates, local minimum wage ordinances: the terrain of employment law can be a complex one.

To control staffing costs and address concerns about liability while still having access to the specialists they need, many companies turn to independent contractors. When a business and its staff are unclear on the difference between employees and contractors, however, they can find themselves facing legal liability in situations they did not anticipate.

Employee Versus Independent Contractor: What’s the Difference?

There are few “hard and fast” legal rules for distinguishing the difference between and employee and an independent contractor. Instead, the Internal Revenue Service and many states look at the relationship between the business and the worker as a whole. The IRS focuses on three primary categories within this relationship:

  • Behavioral: Who controls what the worker does? Who decides when the worker is “on the clock” and how the worker does his or her job?
  • Financial: How is the worker paid? Who pays for things like tools, mileage, and other business expenses? Does the business supply tools, or does the worker have and use their own?
  • Interaction Types: Do the business and worker have their own contract? Does the business provide employee-like benefits to the worker, like a retirement plan, health insurance, or paid vacations? How long will the relationship continue, and is the work performed a “key aspect” of the business?

The more heavily these factors weigh in favor of the business controlling the worker, providing materials, paying for benefits, and relying on the worker’s tasks as core elements of the business, the more likely it is the worker will be seen as an employee.

Employees Versus Contractors: Why It Matters

Understanding the difference between an employee and an individual contractor – and taking steps to make the distinction clear so that one is not mistaken for the other – is essential to any business relying on either type of labor. When you mistakenly categorize a contractor as an employee, you may be paying taxes that your business does not rightfully owe. Mistakenly categorize an employee as a contractor, and your business may owe the IRS and other governmental authorities thousands in back taxes, penalties, and other costs.

The IRS and state employment and tax departments have been “cracking down” recently on the miscategorization of workers in order to ensure businesses are treating their workers appropriately under the law. If you have questions about your specific business, don’t hesitate to contact an experienced Washington state employment law attorney who can help.

Choosing a Washington Business Lawyer You Trust: Bolan Law Group.

When you’re facing questions of business or employment law, choosing an attorney you trust is essential to understanding your legal options and forging the best path forward for yourself and your business. At Bolan Law Group., our attorneys are dedicated to helping our clients find the business solutions that work for them.

To learn more, contact us today for a consultation. Our number is (253) 470-2356, or you can use our online contact form to start the process today.

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