Employee vs Independent Contractor – And Why The Difference Matters

By David Hood
Partnership Chair

Many employers retain the services of independent contractors rather than employees, and for a number of important reasons. Contractors may only be needed for certain jobs or to fulfill a temporary need. Or the work in question may need to be completed but is not sufficient to sustain a lasting employment relationship. For the employer, independent contractors are advantageous because there are far more responsibilities associated with hiring someone as an employee.

Over the years, however, many employers have abused the leniency in the laws that permit them to hire contractors and avoid the typical obligations that attend the traditional employer-employee relationship. Understanding the difference between an independent contractor and an employee is therefore critical. The employment law attorneys of Patrick, Harper & Dixon, LLP are here to assist.

Employee and Independent Contractor Classification

Various state and federal laws spell out criteria for properly classifying a worker as an employee or an independent contractor. In most cases, the issue boils down to how much control the employer has over the worker and the work that is performed. Generally, an employer has the right to exercise much more control over what an employee does and how it is done versus a contractor.

Conversely, independent contractors are basically self-employed individuals who are typically hired for short-term projects. Employers generally do not supervise the contractor’s work quite as closely and exercise far less authority over that work.

Factors to Determine Employee vs. Independent

The Fair Labor Standards Act, in addition to other federal and state laws and regulations, set forth a number of factors to determine whether a worker is an employee or an independent contractor. This list is not exhaustive, and other criteria may apply in your particular case. But here are some good starting points to consider:

  • How much control does the employer exercise over the worker?
  • What, if anything, is the worker’s opportunity for profit or loss and their investment in the business?
  • How much skill and independent initiative is required for the work to be performed?
  • To what extent is the work that is to be performed an integral part of the employer’s business?
  • How long is the working relationship, or is it permanent?
  • Does the worker have his or her own business performing similar tasks for others?

Legal Issues and Obstacles

Failure to properly classify a worker could land an employer in significant legal trouble, including fines and litigation damages. That’s because hiring an employee entails certain obligations that the employer must satisfy under federal and state law. For instance, independent contractors are usually not entitled to tax withholding, minimum wage, or unemployment pay, among other benefits.

Deciding whether a worker is an employee or contractor is not always an easy task. Employers can make a good-faith mistake in improperly classifying someone as an independent contractor, but that mistake can still cost them. As an example, some employers erroneously believe that a worker performing work tasks at home renders that person an independent contractor. In reality, these individuals are employees entitled to all the benefits under the law.

Contact Our Skilled North Carolina Employment Law Attorney Today

While hiring independent contractors can be a smart choice from a financial and efficiency standpoint, all employers need to know the law that surrounds this decision. The simple fact is that you can’t afford to misclassify your workers and expose yourself to liability. If you have questions about the difference between employees and contractors, talk to the attorneys at Patrick, Harper & Dixon, LLP.

About the Author
David W. Hood, Partnership Chair of the Firm, is a trial attorney in a wide-ranging civil practice with over 200 jury trials to his credit. His concentrations include Business Disputes, Construction Law, Personal Injury and Collections. He is also a certified mediator, helping to settle cases pending in both state and federal court. He recently finished his term as President of the North Carolina Association of Defense Attorneys, the organization for lawyers representing business interests in civil litigation. Mr. Hood has spoken to lawyers and industry groups on such topics as evidence rules, contractor liens on real estate and contract funds, underinsured and uninsured motorist coverage, litigation ethics, and real estate claims.