Employee vs. Independent Contractor - What is the difference?

Many business owners can make a common mistake: confusing or not even knowing the difference between an Employee or an Independent Contractor. Not knowing the difference between the two could send you down a black hole of legal action either by the employee, IRS, or State Government. Here are a few ways you can help differentiate between the two when you are the Employer or Customer.

As you go through the types of employment, always keep these three rules of control in mind.

1. Behavioral: Does the company control or have the right to control what the worker does and how they do their job?

2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include how a worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

3. Relationship Type: Are there written contracts or employee benefits? (i.e., pension plan, insurance, vacation pay, etc.)


An employee is someone who regularly works for you. You, as the employer, are in charge of controlling the hours the work is performed, how the work is completed, and the uniform or dress code. You are also responsible for paying employee taxes and taking taxes out of the employee’s check. Usually, those classified as “employee” will receive paychecks on specific days/times throughout the month. This is an indicator that this is an employee and not a contractor.


A Contractor or Independent Contractor is someone who works for themselves. They will have their own legally established business. They control their hours, how the project is carried out, and their uniform. Contractors also invoice the company that they work with, then get paid out for their work.

Quick tip: the more rules of control that describe your relationship, the more likely the worker will be an Employee.

Does your small business need help with onboarding new employees or job costing with your independent contractors? Integrated Employer Solutions can help you understand the difference and make sure you don’t mix up the two.

Get more information, click here.