Employee vs. Contractor, Is There A Difference?

Is there a difference? Oh man, there sure is! The first time I learned this was when I moved from NM to AZ for a short time and I continued to work remotely for my employer in NM (while also working full-time in AZ) and my employer reclassified me as a contractor and did not say a single thing to me. But, sure as shit, I realized this once it was tax time. Contractors have the responsibility to set aside and pay their own taxes - since I didn't know I was now a Contractor with them, I wasn't doing that. Yes...yes, I should have realized there was something wrong with my check, but at that point in my life I was working two full-time jobs, had a young son and our lives were a mess. I was just thankful to have these two paychecks. So that was super cool and not the only time that employer screwed me over. My story there could be a book, an interesting one. ANNNYWAY...

Although I had the "experience" of being a contractor, that's the extent of what I knew until I actually left my corporate career as a Bank Auditor and started my own business, which now has turned into 2 businesses and then obtained my HR certification. And even then it wasn't until 5 or so clients later did I learn what clients can and cannot do and how they can and cannot treat a contractor. Thankfully the first few clients were great, it was the client who was terrible that helped me learn these laws.

I'm pretty sure that all of us know the drill about being an employee, how it works, and "what you get" from your employer. But, just in case, this is how standard employment works:

An employer:

👔Hires you as an employee

👔Pays you a set amount (more often than not, an amount 100% determined by them)

👔Pays you on a timeline they have set

👔Determines what your salary increase it and when it happens

👔Withholds appropriate taxes from your pay and submitted those amounts where they are legally required to go

👔Provides you with a W-2 for your taxes

👔Typically provides you with PTO, health benefits, retirement benefits, such as a 401(k)

👔Sets your schedule (days and time you work)

👔Trains you and oversees your work

👔Is legally responsible for your work with employed

👔Can fire you at any time, normally without cause (most states are employment"at-will" which gives each party - you and the employer to fire/quit at any time for no specific reason)

👔You report to someone re: your performance and they control everything you can and cannot do

👔Provide you with the equipment you need to work - computer, phone, printer, computer programs subscriptions, etc

A Contractor:

🙌Sets their own rate

🙌Tells the client when their payment has to be made

🙌You determine when you will increase your rate

🙌Set your own hours - work at 11:00 pm or 5:00 am - you do you

🙌If a client pays you more than $600 within 12 months, they will issue you a 1099 for your taxes - read more about 1099s

🙌You have to pay your own state and federal taxes, health insurance and open your own retirement accounts, etc, do not get PTO

🙌You are responsible for your own training -- if you are unsure how to do something or are in desperate need of a refresher, you are responsible for any cost that may come with that

🙌Termination of the partnership is outlined in the contract and can vary from project to project - often contracts can be terminated immediately without reason, or upon 10 days written notice, etc. Don't have a contract, grab one NOW!

🙌Is legally responsible for their own work

🙌You must have your own equipment - computer, phone, printer, computer programs subscriptions, etc

🙌You do not "report" to the client. They are not your manager and cannot treat you as such. You are the expert providing the agreed-upon services to them.

Read the IRS rules regarding employee vs. contractor for professional

wording and not Montanna-jargon.

If you are working with a client and they begin to treat you as if you are an employee, even in the slightest, seemingly insignificant/minor way can actually wreak havoc on them in the form of misclassification requiring them to pay back taxes on you, fines and potentially other legal action can be taken.

If a client has never hired a contractor before, chances are they do not know the laws surrounding them and may very well treat you like an employee. If you are a new contractor you may very well not know this and allow them to treat you like an employee. The responsibility is on both parties to know these laws and to help educate each other to avoid a dispute.

The situation with my client was surrounding the hours of work, but they knew very well the laws, they just were...controlling. When we agreed to work together, we both knew I could work any hour and as long or short as I wanted as long as the work was done.

The project was hourly, which I will never do again, and they constantly questioned those hours. Why are you working at 11:00 pm, why did you only work 20 minutes?

Shoot, I'll gladly bill you for an hour, but that call only took 20 minutes...

Now, you can mutually agree that you will work during a certain timeframe or for a certain amount of hours each day for whatever reason, but legally, you have the power to change that or stop at any time. Obviously, some situations that won't make sense, say you answer phones for them and they are open 9:00 am - 5:00 pm, they'd likely terminate the contract, but you do still hold that power.

Their only legal concern is that the work is completed and on-time, per the contract. Now, realize the power you have per federal law. Don't let clients walk all over you. I often see people saying that their clients demand responses to emails or texts at every hour, well if you keep responding, that's on you. You're allowing that behavior to happen.

Side note: WTF do you allow clients to have your personal phone number and text you?? - Do you really need a phone number for your business? You may not, I don't have one - I wrote more about business phone numbers on this post.

Do not respond to messages after hours. Inform the client of your hours during contract negotiations, write it in the contract if you want, list it in your welcome packet, have it in the signature of your emails, list it somewhere on your website, on your scheduling links, turn on your out of office on weekends/holidays - put it just about everywhere you can.

If you're someone like me and feel the need to respond, go ahead and do so, BUT schedule the email to go out during business hours. That way you've gotten rid of the anxiety of needing to respond, but you are maintaining appropriate boundaries and sticking to the hours you have set. I wrote a bit more in-depth about boundaries over on this post.

All-in-all, know your worth, know your RIGHTS, act like AND be the expert.


Let's be social!

Facebook | Instagram | Pinterest | LinkedIn

Sign up for our newsletter and get 20% off your first order at our shop.

This is not legal advice, informational only. This blog does it constitute a

client-consultant relationship.

28 views0 comments
  • Facebook
  • Instagram
  • Pinterest
  • LinkedIn

Shop  |  Blog  |  Newsletter  |  ContactAbout

©2019 - 2020 Complianceology