Independent contractors and employees are differentiated by three main categories of criteria: behavioral control, financial control and the relationship between parties.
Behavioral control includes factors such as: who determines the number of hours worked (the business or the worker), or who decides how the worker does his/her job. For example, if the work needs to be completed between the hours of 8-5 in an office, that person is probably an employee.
Financial control has to do with who procures the supplies to perform the work. Other things to consider are how the worker is compensated: is it a one-time fee or a weekly salary? Are expenses being reimbursed?
Type of Relationship denotes what kind of agreement is in place regarding work and payment. Is this a one-time service bound by an employment contract, or will the relationship continue indefinitely? Does the employee/independent contractor receive any benefits such as insurance benefits?
The necessity of a contractor agreement or an employment contract can be determined based on these three criteria. When working with or as an independent contractor, there should always be a well-written independent contractor agreement in place to protect both parties.
For more information on the different types of employees, visit the IRS website for exact legal descriptions and tax information.
