How to Tell if You Are an Employee or Independent Contractor

Your employment status can impact your entitlements, employment insurance eligibility, and obligations under various statutes. Therefore, knowing whether you’re an independent contractor or an employee is crucial — and an Ohio employment lawyer at Hux Law Firm can help you clear up the confusion. 

Below, we’ll explain the significant differences between an employee and an independent contractor. We’ll also explore the steps to take if you believe you’re wrongly classified.  

Differences Between an Employee and Independent Contractor

Sometimes it’s challenging to identify if you’re an employee or a contractor. The classification process is crucial because there are legal implications when an employer misclassifies you.

The Internal Revenue Service (IRS) and Fair Labor Standard Acts have helped define the differences between independent contractors and employees, and we’ve broken the details down to help you understand it better. Let’s take a look!

Financial Control

Companies pay their employees an hourly or salary wage. The employer determines the payday and deducts the taxes, so employees do not have to prepare invoices. Independent contractors, on the other hand, have a financial stake in their own business — so the payment terms tend to vary.

For example: A contractor might have to invoice for deliverables and time. On the other hand, they could charge project-based fees and request half payment up front and the other half after the completion of the project. 

So, many individual contractors receive a retainer before starting a job. Also, companies don’t withhold tax when paying a contractor’s bills, as they do with employees. Finally, while employees get a regular wage and might even receive a commission, independent contractors usually take a flat fee for jobs done.

Nature of Work Relationship

Under Ohio employment law, your employment status usually depends on the nature of your work relationship. For example, if a contract of service states that your payor controls the type of work you do and how you do the job, then you’re an employee.

If your service for contract only states that your payor can control the outcome of the job, then you’re an independent contractor. As clearly stated, employees have a contract of service while independent contractors have a contract for service. 

Level of Control

Control is one of the factors determining whether you’re an employee or an independent contractor. An independent contractor can hire a subcontractor to perform some of their duties. This is not possible with employees as employers prohibit this.

So, when a company hires an independent contractor, they know someone might perform some of the duties. For employees, an employer provides training and sets their work hours and the rate. You’re also entitled to various benefits like vacation, health insurance, sick leaves, etc.

An independent contractor has complete control over the work process and chooses their work hours and pay rate. However, independent contractors are usually not entitled to company benefits and would also have to pay taxes themselves.

Ownership of Work Tools and Equipment

An employer provides employees with the tools and equipment required to do their job. Your employer is responsible for the tools and equipment maintenance, repairs, and insurance.

Alternatively, independent contractors are responsible for their work tools — and they maintain, repair, and insure these pieces of equipment.

Independent contractors also create their workspace and take care of maintenance costs. Note that some employees, like mechanics and carpenters, might use their personal tools sometimes; this doesn’t change their status as employees.

Making Profits and the Risk of Loss

You can also determine your employment status by who takes the profit or loss in the business. You’re not responsible for paying the operational and overhead costs attached to running a business as an employee. You’re also not liable for debts incurred by the company.

Although you might earn more through several incentive pay plans, you won’t encounter the risk of losses or opportunities for profit. This is because the additional income isn’t viewed as extra proceeds and does not qualify as profits.

On the other hand, independent contractors have some level of financial risk and can also access profit opportunities. One example is jobs that finish before the set time — which could result in savings and allow the independent contractor to move on to other jobs.

The independent contractor may, however, make less money for projects that take too long to conclude. In addition, they are responsible for the debts they incur while carrying out the job. 

What to Do if You’re Incorrectly Classified

Now that you know some of the differences between an employee and an independent contractor, you may have an idea about which category you fall into. If you feel you’re incorrectly classified, an Ohio employment lawyer can help you get on the right path.

Below are steps you can take to ensure you’re correctly classified within your company.

• Report your earnings on your tax return using Form 8919; this is the Uncollected Social Security and Medicare Tax on Wage Form. With this form, you can calculate and report your tax like an employee.
•  If your employer listed you as an independent contractor, fill out the form SS-8 to contest your status. This is the Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding form. In this form, you’ll provide the IRS with the information they need to determine if you’re an employee or an independent contractor. 

The IRS will assign a technician to review your submission after confirming receipt of your form. They may request more information from you or ask your employer for the details you provided to compare both.

It can take as long as six months to get a determination from the IRS. Once the IRS comes to a decision, they send a letter to your employer and forward a copy to you informing you of their decision.

Get Help From an Ohio Employment Lawyer at Hux Law Firm

Worker classification can sometimes be challenging. If you’re unsure what your status is, talk to an Ohio employment lawyer about your situation.

In addition to what we talked about earlier, your employer misclassifying you can also be a violation of the Fair Labor Standards Act (“FLSA”).  If there is a violation of the FLSA, you may be entitled to other damages like minimum wage and overtime that you should have been paid while you were misclassified. An Ohio employment attorney can help you identify facts from your situation to see if you have a FLSA case.

At Hux Law Firm, we’re committed to making sure your rights as an employee are protected. Our firm will assess your case and determine if you’re correctly classified and if you need to contest your employment status. Contact our Ohio employment law firm today to schedule a free case evaluation.