Employee misclassification can lead to serious legal issues. Classifying an employee as an independent contractor means the employee misses out on benefits and other perks.
The New York Department of Labor explains misclassifying workers is something you can avoid by learning more about each category and how to properly assess your labor force.
An employee is a worker who is completely under your control. You can tell this person when to work, what to do and how to do it. You provide the supplies and tools your employee needs to do his or her job. The employee is under the supervision and direction of your business.
A few other key characteristics of an employee relationship are you can tell the worker when he or she can have days off and you review his or her work. Payment for employees usually occurs at an hourly or salary rate. It may also include commission.
You typically have to provide certain benefits to employees, and you will pay the employer portion of his or her income taxes.
In contrast, an independent contractor has more freedom. You do not supervise his or her work directly. Work is usually under a contract, and you have no control over when, where or how he or she does the work. Payment is typically for the work completed and not the time taken to complete it. You also will not offer any benefits or pay the employer part of income taxes for this type of worker.
Essentially, an independent contractor is operating his or her own business and simply providing you services. If your worker does not fall into this classification, then he or she is an employee.