Whether you are an employer, employee or contractor, it is vital to know the difference between employee and independent contractor classifications.
The IRS lists three categories for differentiation. The legal distinction is important and can spill over into many areas. Here is a look at the primary differences.
Concrete, Ongoing Relationship
One key element to consider is the type of relationship involved. For instance, if an employer provides health insurance and benefits, the worker is usually a traditional employee. The same idea applies if the worker is considered permanent, which means the work he or she performs is a main function of the business.
In many cases, there is a difference between employees and contract workers when it comes to finances. For instance, if an employer governs how a worker operates financially within the scope of the work, it is likely that the worker is an employee. Employers tend to provide a work space, tools, equipment, supplies and similar items for regular employees. On the other hand, contract workers tend to choose and purchase their own supplies.
Additionally, if an employer pays someone a salary or an hourly wage with the possibility of overtime, the worker is likely an employee.
It is also important to consider how the business controls the behavior of its employees or contract workers. For instance, if an employer demands that someone work from 8 a.m. to 5 p.m. at a specific site, it is likely that the relationship is of employer and regular employee. Likewise, if the employer dictates to the worker where to buy equipment, the relationship is likely one of employer and employee.
Employee Misclassification in Texas
In many cases, business owners are not aware that they have misclassified employees as contractors, and people who have been misclassified as contractors or salaried are often not aware that their rights have been violated.
If a contract worker turns out to have been treated like a regular employee, he or she could be eligible for compensation such as back overtime pay, benefits and more. That is why it is crucial that employers and employees speak with an employment law attorney when potential disputes over employee classification arise.