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Important Differences Between Hiring Contractors Versus Employees

Businesses often have a multitude of different staffing needs. Therefore, United States employment laws allow companies to employ two different classifications of workers: regular employees and independent contractors. Although the two forms of workers may perform similar kinds of labor, there are key differences between the two classifications.

Important Differences Between Contractors and Employees

The Small Business Administration provides certain guidelines for helping businesses understand the difference between independent contractors and employees.

Companies may occasionally refer to independent contractors as “1099s,” because their earnings are reported using the Internal Revenue Service (IRS) form 1099. In general, workers are independent contractors if they:

  • Operate under business or DBA names
  • Advertise their services or products
  • Send invoices when work is completed
  • Use their own tools and materials, and generally set their own work hours
  • Can work for more than one client
  • Generally do not have to follow orders or instructions given by the employer
  • Provide occasional or one-time services

Conversely, the law defines “employees” as individuals who:

  • Work and perform duties under the supervision or control of a business
  • Receive training, tools and materials for performing their job
  • Work solely for the employer
  • Provide ongoing services

The key benefit of having an independent contractor is that he or she is often much cheaper for businesses to hire for a particular task or project. However, the law makes it very clear that companies must not abuse the employer-contractor relationship by asking a contractor to perform the duties of a regular employee.

Legal Penalties for Businesses Not Following Employment Laws

If an individual does the work of a regular employee but receives classification as an independent contractor, the penalties can be severe and extremely costly for the company. The law may force a business that is guilty of abusing these business laws to pay:

  • Wages that should have been paid, including minimum wage and overtime claims

  • Any federal and state income taxes that would have been paid if the worker was classified as an employee

  • Workers’ compensation benefits, if necessary

  • All insurance and retirement benefits per company policy

When making a decision regarding an employee’s classification, it is essential that you review the situation carefully to avoid putting your business at risk of penalties. You may consider having a qualified business lawyer review the situation before the hiring takes place.

Do You Need the Assistance of a Business Lawyer in Chicago?

Our Hoffman Estates lawyers represent businesses throughout the greater Chicago area. If you have questions about finding a hiring solution that fits your business, contact our office by calling 847-310-0025.

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