Independent Contractor VS Employee

In the United States, a distinction is made between workers who work as independent contractors and those who are categorized as employees for tax purposes. The Internal Revenue Service determines if someone is an independent contractor or an employee based on the type of relationship between the worker and the business.

Employee

A business or other employer exerts the most control over an employee. First, the business controls the employee's behavior in regards to performance of the work. The business decides how the employee works, where the employee works and the hours the employee must work.

The business also exerts financial control over the employee. Employees usually do not have to purchase their own tools and employers reimburse any costs the employee incurs. The business decides which expenses to reimburse, however. Businesses guarantee an employee specific wages for time worked.

An employee also has a very specific relationship with the business that employs them. Businesses generally offer employees benefits like paid sick leave, vacation time, and health insurance. Additionally, businesses hire employees indefinitely, rather than just for a single project.

Independent Contractor

Independent contractors have much more control over their work activities than employees do. Businesses do not control how or when independent contractors work. Instead they only control the outcome of the work.

Businesses generally do not control the financial aspects of an independent contractors job. Independent contractors purchase their own tools and are responsible for their own expenses. Also, employers pay independent contractors per project completed instead of for time worked.

The type of relationship an independent contractor has with a business is much different than an employees relationship. Businesses do not offer benefits to independent contractors, or a permanent working relationship. Instead, businesses hire independent contractors for a specific project.