1. Are Independent Contractors Employees?
2. What Are Some of the Differences Between an Employee and an Independent Contractor?
3. How Does an Employer Decide If I Am an Employee or Independent Contractor?
4. Why Does the IRS Want to Know My Employment Status?
5. What Are Some Important Factors the IRS Uses to Determine My Employment Status?

Your independent contractor agreement Ohio outlines your working terms when you have been hired for a contract job. Oftentimes, the terms of the contract are written down, though some people still choose to use verbal agreements as well.

Are Independent Contractors Employees?

The U.S Department of Labor can and will consider you an employee depending on the business relationship you have with your employer. Recently, independent contractors have been called "on-demand" laborers. They are considered employees who work online contracting jobs that are generally found through online or app-based companies. A good example of this type of worker is an Uber driver. The driver works according to a schedule that he or she chooses.

Unfortunately, companies, like Uber, have faced harsh criticism over the way the public perceives them to treat the people who carry out their services. However, these companies defend their process by stating labor regulations will destroy any advancement potentials. More so, they state that they are not employers and the people who work for them are not employees. To counter this, legislation is being developed to determine what rights these workers have while carrying out services for these companies. Some of these aspects include:

  • Insurance programs
  • Mandatory minimum wage
  • The ability to voice themselves on a job

Times are changing for "on-demand" workers, and many argue that it may be the way of the future for contract labor.

What Are Some of the Differences Between an Employee and an Independent Contractor?

There are many differences between independent contractors and employees. Oftentimes, independent contractors do not have the same rights that an employee has. As an example, employees have federal laws that protect them from discrimination and harassment in the workforce. Employees are also protected by mandatory minimum wage and are able to receive overtime if they work past 40 hours.

Unfortunately, contractors do not receive any of these benefits. Beneficially, contractors have an advantage over employees when it comes to payroll taxes. Employees have taxes automatically deducted from their paycheck each pay period. Contractors do not have to deduct anything from their earnings. Contractors also have more freedom than employees do by setting their own hours of work.

How Does an Employer Decide If I Am an Employee or Independent Contractor?

Deciding whether or not their workers are employees or independent contractors is an important decision every business must make. There are no particular rules set in place that can determine whether you are an independent contractor or employee. Fortunately, there have been guidelines developed by the DOL (Department of Labor) and the IRS to help employers decide what the best course of action would be to choosing the correct status of their workers.

Why Does the IRS Want to Know My Employment Status?

In order to properly collect taxes, the IRS needs to know what your employment status is so that they can tax accordingly. Normally, taxes are deducted from employee's paychecks each month. However, independent contractors will end up owing taxes at the end of the fiscal year. They must pay a "self-employment" tax that covers the amount that they owe to the IRS if they reach a certain amount.

What Are Some Important Factors the IRS Uses to Determine My Employment Status?

The IRS rules that all workers employed by a business receive an employee status. It is then up to the business to prove that one of their workers is an independent contractor to the IRS. Fortunately, the IRS has created a simplified list to determine whether a worker is an employee or an independent contractor. The list consists of 20 factors that are divided into a three-category system. The three categories are:

  • Behavioral Control. The amount of control that an employer has over a worker regarding how they perform their job duties determines whether or not that individual is an employee or not. The less control that the employer has over a worker, the more likely it is that they can be considered an independent contractor.
  • Type of Relationship. Employees report to their jobs on a daily basis. Independent contractors are oftentimes hired for one specific job and end their work relationship once the job has been completed.
  • Financial Control. Employees do not have to purchase equipment that goes into the business, while independent contractors are responsible for purchasing all of their work-related equipment.

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