The short answer
An employee has taxes taken out, is owed minimum wage and overtime, and is usually covered by workers compensation. An independent contractor is paid the whole amount, handles their own taxes, and has fewer protections. What you are called does not decide it. How the work is actually controlled does.
The short version of the difference
An employee works for someone. The employer decides when you show up, how the job is done, and what you use to do it. They take taxes out of your pay and they carry the insurance.
A contractor is running their own small operation. You decide how to do the work, you bring your own tools, you can turn work down, and you handle your own taxes.
Most day labor is paid as contractor work. A fair amount of it looks a lot like employee work when you read the list above.
What it changes for you
This is not a paperwork detail. It changes four real things.
- Minimum wage and overtime, which employees are owed and contractors are not.
- Taxes, which come out of an employee check and are yours to handle as a contractor.
- Workers compensation, which usually covers employees and usually does not cover contractors.
- Unemployment, which employee work can build toward and contractor work generally does not.
The label does not decide it
An employer cannot make you a contractor by writing contractor on a form. Agencies look at how the work really happened.
The questions they ask are simple ones. Who set the hours. Who said how to do it. Who supplied the tools and the material. Could you have sent somebody else in your place. Could you take the same work from someone else that week.
The more of those the employer controlled, the more it looks like employment, whatever the paperwork said.
Why some employers get it wrong on purpose
Calling a worker a contractor saves the employer the payroll taxes, the overtime, and the insurance. That is a lot of money, and some of them know exactly what they are doing.
Plenty of others are not scheming at all. A homeowner hiring two people for a Saturday has no idea any of this exists.
What to do about it
Ask at the start which one you are, and get the answer in a message. It tells you whether to expect a 1099, whether to set money aside, and whether you are covered if you are hurt.
If you believe you were treated as an employee but paid as a contractor, your state labor agency and the IRS both have a process for that. The IRS form for it is SS-8, which asks them to decide your status.
Do not let it stop you from taking work. Just know which one you are in, because everything else in this section depends on that answer.
This guide is general information, not legal, tax, or insurance advice. Rules differ by state and by situation, so talk to your own professional before you rely on it.
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