Federal and state regulators are cracking down on employers who misclassify employees as contractors or freelancers. So really, what is the the difference between the two?
When it comes to being an independent contractor, many will tell you they enjoy a flexible schedule, the opportunity to build a brand around their work, and the ability to delegate work to, and collaborate with, other independent contractors as they see fit. The potential to make big money based on their own business chops holds a special appeal.
Employees, on the other hand, may not have the flexible schedule and the ability to call the shots, and may be bound by a set salary or hourly wage, but, on the plus side, they are able to take advantage of important benefits and legal protections not available to independent contractors.
Employees are protected by federal and state wage and hour laws, which dictate matters such as minimum wage requirements, breaks and overtime pay. By law, employees enjoy paid sick leave and may also receive unpaid leave for certain matters related to family and medical, jury duty and others. Employees are protected by federal and state laws regarding harassment, discrimination and retaliation at work. Workplace injuries or work related sickness are covered by workers’ compensation insurance carried by the employer. Employers often provide short and long term disability packages, in addition to state disability, to cover wages when an employee cannot work. Employers can typically offer more affordable group health insurance coverage for individuals and their families.
Independent contractors control their hours and wage according to the terms of an agreed upon contract – there is no overtime pay or breaks guaranteed for long days. Paid sick leave or unpaid leave is not part of the vocabulary. Employer provided worker’s compensation insurance for job related injuries or illness is not available to an independent contractor – contractors are left to their own devices. If they become sick, disabled, or require time off for other reasons, there is not a employer safety net holding their jobs or helping out with the bills. While independent contractors are free to find insurance products for healthcare and disability independently, the costs can be prohibitive for an individual.
Beyond what is required by law, many employers offer employee benefits such as paid vacation, retirement plans, reimbursement of educational costs, access to group life and disability insurance, commuter benefits, stock plans and flexible spending accounts for health and child care. These generally are not offered to contractors, but then again, the potential to earn more money to purchase similar products, invest and work at will – perhaps from remote tropical locations – may ultimately level the playing field.
Whether workers are classified as employees or independent contractors is still evolving. Some contractors look forward to the possibility of being bona fide employees with all the associated perks and protections while others prefer to chart their own course. If you have questions regarding an employment law matter, contact the Des Moines Law Offices of Stoltze & Updegraff PLC for help today.
Source: San Francisco Chronicle, “The Real Differences Between Contractors and Employees”, By Kathleen Pender, September 18, 2015.