An employee is someone who you can control when they work, what they are working on and how they complete there work. You own all work they do while they are “on the clock”. You are responsible for submitting their three taxes: income, social security and unemployment.
A contractor is a self-employed person who works for you under a contracted agreement. You give them a result you want to achieve (example: an ebook written.) You give them parameters and you get a finished (or semi-finished) product in return. That “product” may be anything from customer service tasks or something physical. The contractor retains the ownership rights until you pay their invoice or until the intellectual rights clause of the contract is met.
An independent contractor:
- Has a business license
- May have their own employees
- Invoices you for their work
- Has multiple clients
- Has their own tools and equipment
- Sets their own work hours
- Keeps business records
- Can leave their contract between any project
- Performs duties dictated or controlled by others
- Is trained for work
- Is provided equipment to complete their work
- Has work hours set by the employer
- Works for only one employer
The Internal Revenue Service (IRS) does not recognize the validity of any written agreement between the parties, when these guidelines are broken. Each case is settled on a case-by-case basic but within the boundaries set above. For full guidelines, while a little more difficult to read, please refer to the IRS Guide to Independent Contractors vs. Employees.
For small brick and mortar businesses, typically any person working on site with set hours is an employee. An intern is considered a regular employee with a shortened term of work. Attempting to circumvent the guidelines and calling someone who is an employee a contractor can be very costly, in legal terms, employment taxes and fines.
When in doubt, contact your business attorney or an employment attorney. Need a reference to an employment law attorney or have an employment related question? Comment or contact me.