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Are You an Independent Contractor or an Employee?

Employee and independent contractor distinction is very important at the time of accepting a new job as it directly affects your pay scale and the way you pay taxes as a worker.

If you are hired as an employee then you would either get a salary or receive wages paid by the hour. You might also be a beneficiary of overtime pay. You would have to pay taxes on your income and your employer will deduct federal and state income taxes and FICA taxes (Social Security and Medicare).

However, there is a very fine line distinguishing employee status from that of an independent contractor. Many times employers try to avoid responsibility and may categorize you as an independent contractor. To understand more about the complexities involving the business relation between an employer and an employee you should get in touch with an accomplished employment attorney.

The New York and New Jersey based attorneys at Emre Polat Law Group are experienced in analyzing the legal status of the professional relationship which you have with your employer in order to gauge whether your employer is or was violating your rights, and provide you the best legal advice and support.

Difference Between an Independent Contractor and an Employee

An independent contractor is something like hired help. They have their own business and perform work for another business. In contrast, an employee is hired by an organization in a capacity which is pre-established. The IRS has laid down clear distinctions between an employee and an independent contractor on the basis of taxes, withholding taxes and payroll.

Worker’s Status as per IRS

There are three general criteria set up by the IRS which differentiate an employee from an independent contractor. These are:

Contract and type of work

The presence of a contract can establish you in the eyes of the law as an independent contractor. However, this is not the only controlling factor. If you are the recipient of any work benefits in the capacity of a worker, then this would be indicative of an employment relationship.

On top of this, if you are involved in any type of work which is related to the core business of the employer, you are most probably an employee. (For example, a person who is hired for maintenance work by a bank is not expected to work with client accounts.)

Control over tasks and behavior

An independent contractor sets his own hours in accordance with the hirer and works with very little to no supervisory direction or training. An employee on the other hand is trained and directed to work as per the instructions of an employer. As an employee, your hours of work, tasks to be performed, guidelines and even specifics such as tools to be used would be determined and overseen by the employer.

Control over payment and other factors

If your payment, your freedom to work for others, and whether you are in a position to incur profits, are not restricted by the person you are working for, then you are most probably an independent worker. An employee is paid a salary and usually has no share in the company’s profits and losses. He or she is also not allowed to work for other employers.

Decisions of Supreme Court Regarding the Status of an Independent Contractor

Supreme Court decisions are relied upon by the Department of Labor where status of independent contractors is concerned. As per these decisions, just a single rule or test is usually not enough when categorizing a worker as independent contractor for the purpose of FLSA. According to the Supreme Court, the overall situation or activity determines such a categorization.

Some significant factors that affect the distinction are listed below:

  • The degree of operation and independent business organization
  • Opportunities of profit and loss by the alleged contractor
  • Amount which the alleged contractor has invested in equipment and other facilities
  • The degree of foresight, initiative, and judgment which would be required to be successful in open market competition by alleged contractor
  • The extent of services being an integral part of the business
  • Degree of permanency in working relationship

Factors which are considered inconsequential to this decision include:

  • Place of work
  • Absence of a formal employment agreement
  • Time or mode of payment
  • Whether or not the alleged independent contractor has license by state/local government

Who Gets Workers’ Compensation?

Usually only employees (and not independent contractors) are entitled to workers’ compensation for injuries or death. However, in some cases the Workers’ Compensation Board may make a decision based on the working relationship between the individual and the employer.

The board may classify a worker as an employee for the benefits of workers’ compensation, but not for IRS purposes.

To cover an employee for workers’ compensation, there are many statutory guidelines which must be met. Farm workers, domestic servants employed less than 40 hours a week, insurance and real estate agents or amateur athletes for non-profits are a few examples of individuals who could be entitled to workers’ compensation as a special case.

Get Advice from a Prolific New York Attorney

Your employer does not have the right to label you with exempt, non-exempt or contractor status as they want. These decisions are determined by the law. You have rights as a worker, which are protected by the law. Get in touch with Emre Polat, who is an experienced employment attorney in New York, to understand what your working status might actually be as per the law.

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