Independent Contractors – are individuals who contract with a business to perform a specific project or set of projects. You, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

Example: Sam Smith, an electrician, submitted a bid of $6,400 to a housing complex for electrical work. Per the terms of his contract, every two weeks for the next ten weeks, he will receive a payment of $1,280. This is not considered payment by the hour. Even if he works more or less than 400 hours to complete the work, Sam will still receive $6,400. He also performs additional electrical installations under contracts with other companies that he obtained through advertisements. Sam Smith is an independent contractor.

Labor laws vary by state. Please call if you have specific questions.

Employees – provide work in an ongoing, structured basis. In general, anyone who performs services for you is your employee if you can control what will be done and how it will be done. A worker is still considered an employee even when you give them freedom of action. What matters is that you have the right to control the details of how the services are performed.

Example: Sarah Smith is a salesperson employed on a full-time basis by Rob Robinson, an auto dealer. She works six days a week and is on duty in Rob’s showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager’s approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Rob. Rob also pays the cost of health insurance and group term life insurance for Sarah. Sarah Smith is an employee of Rob Robinson.