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Am I an employee or independent contractor? Why does it matter?

While there are various types of employment statuses, the two main types are employees and contractors. Understanding that there are differences between these two statuses -- and what those differences are -- is crucial for workers in order to ensure they are properly compensated and protected on the job.

Broadly speaking, contractors and employees differ in how they are paid and the manner in which they perform their job. Below we look at these elements a little bit more closely.

Elements of an independent contractor vs. employee

Independent contractors generally:

  • Control their own work
  • Sign a contract with a company to fulfill specific work functions
  • Work as needed by a company
  • Maintain financial control 
  • Can provide similar services to other businesses
  • Do not have employment taxes withheld by a company
  • Do not receive certain employment benefits, like health care or workers' compensation coverage

Employees, on the other hand, generally:

  • Have their work and wages controlled by their employer
  • May be confined by a non-compete agreement
  • May sign employment agreements created by the employer
  • Work in accordance to employer-defined schedules 
  • Receive more direction from employers
  • Have taxes withheld from paychecks by employers
  • Are eligible to receive health care coverage, workers' compensation coverage and other benefits

Why proper classification matters

There are many reasons why proper classification matters. To begin with, it will affect how (and if) employment taxes are withheld. It will also affect protections like workers' compensation benefits and job-protected leave, which typically are not in place for contractors.

Worker misclassification can happen inadvertently when parties are unfamiliar with complex labor laws. It can also happen purposefully when employers try to reduce labor costs or legal obligations by wrongfully classifying an employer as a contractor. In either case, the worker is the one who typically suffers.

What you can do if your employer misclassified you

Should you believe that you are misclassified, it is crucial that you consult an attorney as soon as possible. Without legal protection and guidance, you can be robbed of wages, benefits and protections that you deserve.

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