It's important for a business owner to be able to make the distinction between employee and independent contractor for many reasons, the most important being how that person gets paid. The easiest place to begin is by defining what an employee is: "a person who is hired to provide services to a company on a regular basis in exchange for compensation and who does not provide these services as part of an independent business." However, it can start to get sticky if you are an IC and hire out work to someone else; does that make them subcontractors (also ICs) or employees? Review these guidelines to determine whom you're dealing with.
1. Employee wages are subject to withholding of income taxes, while you yourself pay Social Security, Medicare, and unemployment tax for that employee. As a rule, none of this applies when remitting payment to ICs.
2. Employees are trained to perform services in a particular way and are expected to attend meetings and participate in correspondence courses; ICs perform services according to their own standards and receive no training from the purchaser of their services.
3. Employees are expected to adhere to company policy regarding when, where and how work is to be performed; ICs set their own hours and maintain their own schedule.
4. Employees typically have no set period in which to work for any particular company, and their employment can last as long as both parties desire; ICs are hired to do one job, and when it is complete the relationship usually ends there.
5. Employees receive all the tools necessary to do their job from the employer; ICs furnish their own tools.
6. Employees can terminate their position at any time without incurring liability; ICs are bound to satisfactory completion of the job hired for. Employees are not held responsible once they leave for any errors committed while on the job; ICs are legally obligated to make good for any failure.