Independent Contractor Vs Employees
Working with businesses such as contractors, the question comes up quite often about if their workers are employees or independent contractors. I feel this gets mixed up quite a bit, so I decided to write this and answer some questions on what is an independent contractor, and what is an employee, and the penalties to misclassifying employees as independent contractors.
What is an Independent Contractor vs an Employee?
An independent contractor is someone who is in business for himself or herself. Independent contractors usually perform work that requires a specialized skill or trade that is not part of a company’s regular business. They also provide their own tools and equipment; and determine how and when the work is to be done.
An employee, on the other hand, is someone whom a company and employer have much more control over. An employee typically performs work that is a regular part of a company’s business. The company has control over how the employee performs the work, often providing training, guidelines, or other supervision over the work product. Employees also usually have regularly scheduled hours; work at the employer’s place of business; receive training and direction from the company; receive an hourly wage or salary.
There is a big difference between the two!
An employee is subject to various payroll taxes, minimum wage, overtime, and worker protection programs. The responsibilities for a business that hires an independent contractor are minimal. The Business does not have to file or pay payroll taxes or workers compensation insurance (although the independent contractor must pay self-employment taxes and should carry their own personal liability insurance).
A worker who is classified as an independent contractor can potentially save businesses a lot of money … that is if they are actually an independent contractor. A worker who is misclassified as an independent contractor can actually cost an employer a lot more money. The Employer is hit with severe penalties, and is responsible for the worker’s share of the payroll taxes.
You do not want to be hit with any of these penalties…!
The IRS makes the business or employer pay for back employment taxes and withholdings, and severe penalties, but the EDD with the state of California is as or more aggressive than the IRS when it comes to payroll tax audits.
Here are some of the Violations that the State of California and the EDD will fine you for misclassifying your worker.
- $5,000 to $15,000 for each violation (A single misclassified individual)
- $10,000 to $25,000 for each violation if the labor commissioner, or a court, determines there is a “pattern and practice” of these violations.
If you have any questions about your employees or independent contractors or want more information from us here at Jackson & Jackson Insurance Agents and Brokers please contact our office!
Taylor J. Garcia
Business Insurance Specialist
(626)914-9944 ex: 224