Independent Contractor vs. Employee

An employee works as part of an employer’s business and is subject to employment and payroll rules, while an independent contractor operates as a separate business relationship. The classification depends on the facts of the working relationship, not simply the label in a contract.

Worker classification affects payroll taxes, wage-and-hour protections, benefits, unemployment, workers’ compensation, and other obligations. Different federal and state agencies may use different tests, often looking at factors such as control, independence, and the economic relationship between the parties. Employers should evaluate the actual work arrangement before classifying a worker.