Employee or Independent Contractor?
It’s up to your business!
Every business’ internal structure is different: some may only consist of full-time or part-time employees, and some may also hire independent contractors to fill in the gaps. But whether your new hire is classified as a staff member or an independent contractor is not a decision for them to make – it’s a choice that’s entirely left to your business. It’s important to know the rules and regulations surrounding independent contractors and why you should always make the separation clear from the very beginning.
Know the Difference
The most important legal distinction between an employee and an independent contractor is the status of their tax withholding. Company employees are subject to income tax, Social Security, and Medicare tax withholdings from their paychecks, while independent contractors are not. Additionally, independent contractors are not protected by employment or labor laws. There are several elements organizations consider when determining whether to hire an employee or independent contractor, including how much control the organization will have over the worker and their performance, how they are paid, whether the worker will have benefits, and how longer the worker will be servicing the company.
In January of 2024, the U.S. Department of Labor made the final ruling on employee versus independent contractor classification under the Fair Labor Standards Act (FLSA). While the ruling confirms that an independent contractor is not “economically dependent” on the company for work, it also outlines a specific analysis that organizations must apply to each position they fill.
It’s Your Choice
Your team’s employee status is determined by you and your business; it is not an individual’s decision. Some employees believe that independent contractor status means they don’t have to pay taxes and might attempt to voluntarily switch their classification, but this is illegal. If your employees are protected by FLSA rights, they are not eligible to refuse those protections or choose to be labeled as an independent contractor.
However, your business is also responsible for ensuring that each new hire is classified correctly. Employees accidentally categorized as independent contractors will lose their minimum wage, overtime pay, and other FLSA guarantees.
We Can Help!
Legal distinctions between employees and independent contractors can be confusing and may need some extra assistance. Luckily, that’s where we come in! Our team of dedicated HR professionals will make sure you and your team stay up to date on the labor laws you need to know to keep your business running smoothly and fairly.