How do I tell an independent contractor from an employee?

The fundamental difference between an independent contractor and an employee is the right to control or direct the work.

Independent contractor

A worker is an independent contractor if the person or company paying them has the right to control or direct only the result of the work —not how it's done. These are usually people in independent trades, businesses or professions who offer services to the public, such as doctors, lawyers, accountants or subcontractors. Because they're self-employed, whoever hires them doesn't withhold or pay payroll taxes on those payments.

Employee

A worker is an employee (under common law) if you have the right to control what will be done and how it will be done —even if you give the worker freedom of action. What matters is that you have the right to control the details of how the services are performed.

Why this matters

Classifying correctly is crucial: if you misclassify an employee as an independent contractor, you can be held liable for that worker's payroll taxes —plus penalties. If you're not sure how to classify someone on your team, we can help you get it right.