Hired as a contractor or an employee: What's the difference?

When an employer hires you, he or she will likely classify you as either an employee or an independent contractor. At first, you might not realize what the difference between those two classifications. In fact, you might not even know what classification your employer has technically assigned.

However, it is crucial that you know whether you are an employee or a contractor, as it will have a dramatic impact on things like your wages and benefits. For instance, if your employer classifies you -- wrongfully or not -- as an independent contractor, there are many protections you will not have.

As noted in this article by the U.S. Department of Labor, many state and federal labor laws that protect employees do not also protect independent contractors. More specifically, while there are various exceptions and clarifications, independent contractors generally may not:

  • Be eligible for FMLA coverage, which establishes minimum wage and overtime pay
  • Be covered by workers' compensation benefits
  • Have unemployment insurance
  • Be protected from discrimination and retaliation
  • Pay the same amount of Social Security taxes that employees pay; they could pay double
  • Receive benefits like health insurance from their employer

The trade-off is that independent contractors have much more freedom in where, when and for whom they work. They are also essentially their own bosses. 

With all this in mind, it should be clear that there are distinct differences between employees and independent contractors in the eyes of the law. Employers should be familiar with the legal logistics of classifying workers, but many workers are not.

Because of this discrepancy, and because workers have a lot on the line, it is crucial that you consult an attorney if you believe you have been misclassified. You should not have to pay the price for an employer's accidental or purposeful failure to observe their legal duty to classify workers properly. With legal guidance, you can file a claim to protect yourself, your paycheck and your livelihood.

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