Why it is Important
Worker classification is important for an employer to consider because it has a huge influence on how workers are paid. The difference between how an in-house worker and off-site independent contractor are treated by a company mostly comes down to the taxes that must be paid on wages and the benefits each worker is eligible for. Employees’ wages are generally subject to unemployment insurance tax, and the employer must also take Social Security and Medicare taxes into account. Independent contractors generally do not receive these benefits, and no taxes are paid on their wages.
Workers fall into one of four categories: Independent Contractor, Common-Law Employee, Statutory Employee, or Statutory Nonemployee. A worker’s category is determined on a case-by-case basis by the employer, but the general difference between contractors and employees is how much control the employer has over the work that is done and the result of that work. The rule of thumb is that if the employer has no say in how the work is completed, the worker is an independent contractor. If the employer oversees operations, they are an employee. Salesmen, delivery drivers, and insurance agents straddle this line since they are under employer guidelines that determine how they go about their business, but not under direct supervision and fairly autonomous. Despite this ambiguity, they are often considered employees.
The most misunderstood worker classification is the independent contractor. Contractors are loosely defined as those who bring their skills to an employer without being solicited. Because they perform their services in a manner determined by themselves instead of their employer, they are not entitled to the benefits of an employee. They can only expect to be paid once they have completed the task set out by the employer and the objective is completed satisfactorily.
Read the full story at Why Staffing Firms Must Ensure Proper Worker Classification