Employees versus Independent Contractors

According to employment law, an independent contractor is a person who works for a company on either a contract or case-by-case basis. Although independent contractors are doing work for a company, and are temporarily employed by the company, they are not considered to be employees of the company.

Independent contractors work for themselves, and as such they earn their living from their own businesses as opposed to relying on an employer to provide them with their salary. Some examples of those who are considered to be independent contractors include, but are not limited to:

• Professionals offering services or advice to the general public, such as attorneys and real estate agents; and
• Trades in which the worker has a greater degree of autonomy, such as writers.

Independent contractors differ from employees in that they control what work they take on, as well as how they complete that work. This is different from an employee-employer relationship in which the employer controls when, where, and how the employee’s work is to be completed. Additionally, independent contractors do not have taxes withheld from their income by their employer.

Most labor and employment laws do not apply to independent contractors. One of the primary ways to differentiate independent contractors from employees is to determine how the worker is being paid for their work. If the worker is on the payroll and is consistently receiving paychecks, they are most likely going to be classified as an employee.

Another difference is that there are many federal and state laws that cover employees, such as the Internal Revenue Code (“IRC”) and the Fair Labor Standards Act (“FLSA”). Employers must follow these laws by:

• Paying Social Security and Medicare;
• Withholding income taxes;
• Paying for unemployment insurance;
• Paying at least the minimum wage; and
• Paying overtime wages.

Independent contractors are not covered by such requirements; as such, an independent contractor will generally earn higher wages. This is due to the fact that an employer does not withhold income tax, nor does the employer pay for benefits. An independent contractor is in control of paying their taxes, and are largely responsible for their own actions. Liability for any misconduct is limited to the independent contractor, and will not usually extend to the employer. Conversely, an employer may be held responsible for the actions of an employee through vicarious liability.

Am I an Employee, or an Independent Contractor?

Some other factors which designate a person as an independent contractor instead of an employee include:

• The contractor provides all of their own necessary equipment;
• At any time, the contractor may be dismissed from the job without due process;
• At any time, the contractor may choose whether to return to work, without fear of losing their employment; and
• The worker is in control of their working hours, as well as their schedule as a whole.

It is important to note that each state has its own rules to determine whether a worker is an employee or an independent contractor. Generally speaking, if a person is an employee and not an independent contractor:

• The work hours are set by the employer, and not the employee;
• The employee cannot accept or reject work related projects at will; and
• The company provides all necessary tools for the employee to complete the work required of them.

Essentially, differentiating between employees and independent contractors is that of the right to control. If the employer controls what is done as well as how it is to be done, then the worker is considered to be an employee. If the worker controls what is done and how it is done, it is likely that they will be considered an independent contractor.

Some states may also consider the relationship between the worker and the employer in order to determine whether a worker is an independent contractor or employee. Some examples of factors that are considered include, but may not be limited to:

• Instruction and training provided to the worker;
• Set working hours;
• Whether compensation occurs by the hour, week or month, or by task;
• Whether business and/or travel expenses are paid by the company;
• If the employee is working full time for one company, or is working for several companies at a time;
• How much skill the work requires;
• If the parties involved believe themselves to employees or independent contractors;
• The amount of time working with or for the company; and
• The overall importance of the work to the company.

What Type of Relief is Available to Independent Contractors During the COVID-19 Outbreak? Can I Get Unemployment if I Am an Independent Contractor?

Under the Small Business Administration (“SBA”), the Paycheck Protection Program (“PPP”) has been especially popular during the COVID-19 outbreak. This loan program allows independent contractors to borrow up to 2.5 times what they earned during each month in either 2019 or or 2020, up to $20,833. The terms of the loan are attractive due to the fact that the loans are for two years at a 0.5% interest rate; additionally, the loan is completely forgiven if the independent contractor used the money for business expenses such as paying themselves.

Generally speaking, independent contractors cannot receive unemployment benefits. However, the Pandemic Unemployment Assistance program in mid-2020 made it so independent contractors can now collect unemployment benefits with an increased minimum benefit of $600/week. The American Rescue Plan Act has extended these conditions to September of 2021, and increases the maximum by $300/week through September 6th of 2021.

Some other types of relief available to independent contractors during the COVID-19 outbreak include, but may not be limited to:

• According to the American Rescue Plan Act, 2020 unemployment benefits are tax-free under certain conditions;
• Sick and family leave tax credits for those who are self-employed, such as independent contractors, are extended to 2021;
• Affordable Care Act coverage has been made more affordable in order to cover more self-employed people;
• Independent contractors may deduct business losses against their other income; and
• Various SBA grants and loans in addition to the PPP loan, such as the Small Business Administration’s Economic Injury Disaster loans and grants, 7A loans, and microloans.

It is important to note that in order to qualify for and/or receive these forms of relief, an independent contractor would need to contact several different agencies. An attorney may be a worthwhile investment, as they will most likely be able to help determine how to accomplish this.

Do I Need to Hire an Employment Law Attorney?

If you are facing any sort of issues associated with differentiating yourself as either an independent contractor or an employee, you should consult with an experienced contract attorney in your area. Because state laws can vary in terms of definitions and laws, it is important that you work with someone local to you so that they can help you determine how your state’s laws may affect your legal options.

An experienced local employment attorney can help protect and assert your legal rights no matter your employment classification, and may also be able to provide some assistance in obtaining COVID-19 relief for independent contracts. Further, an employment law attorney will also be able to represent you in court, as needed, should a lawsuit be needed to resolve the issues you are facing.