What Is the Difference Between an Employee and an Independent Contractor?

Who Is an Employee?

An employee is a worker who is under the direct control of his or her employer. Typically, an employee must comply with specific work rules and expectations. In exchange, the employer must pay wages and other benefits.

Employees have broad legal protections. Most employees are covered by:

  • Wage and hour laws (including minimum wage and overtime rules);
  • Discrimination laws;
  • ERISA, the Affordable Healthcare Act, and other employee benefits laws;
  • Unemployment benefits laws; and
  • Workers’ compensation.

These benefits and legal rights are an important part of the employee-employer relationship.

An employer-employee relationship can exist even if the company calls you an independent contractor and gives you an IRS Form 1099, instead of a W-2. An experienced employee rights lawyer will consider a series of factors (sometimes called the “economic reality test”) when determining employee status. You may be an employee if:

  • You are paid an hourly wage rate, salary, or a draw against future commissions with no requirement for repayment;
  • You receive fringe benefits as part of your compensation package;
  • The company sets your work hours and productivity expectations;
  • You are provided with the tools and equipment necessary for your job;
  • You have a direct supervisor who gives performance reviews and other assessments;
  • You are forbidden from working for other companies or competitors;
  • The company sets your rate of pay;
  • You must attend mandatory meetings, training sessions, and other company events; and
  • The company has the power to hire and fire.

Other factors may also come into play, depending on the facts of your case.

Additionally, you may be an employee even if you do not clearly meet this economic reality test. New York law recognizes that the following persons may be employees:

  • An agent or commission-driver who delivers food or beverages;
  • A full-time salesperson;
  • Professional musicians and performing artists who work for a broadcast company, theater, or other venue;
  • Professional models who have transferred use of their name and likeness to an agency who controls their assignments, hours of work, and place of work in exchange for compensation; and
  • Some construction workers.

Who Is an Independent Contractor?

An independent contractor performs work for a company, but is not under its control. Although written contracts are common between independent contractors and companies, verbal agreements are also allowed.

An independent contractor has significantly more freedom than an employee. As your Bronx employee rights lawyer will explain, under New York law, you may be an independent contractor if you:

  • Hold yourself out as business and accept other clients (including a client’s competitors);
  • Have your own business cards, stationary, and marketing materials;
  • Pay your own business expenses;
  • Provide your own tools, equipment, and facilities;
  • Have the power to refuse a company’s work;
  • Set your own compensation rates;
  • Decide what hours you work; and
  • Are not directly supervised by the client or company.

Again, courts determine independent contractor status on a case-by-case basis. Your situation may involve other factors or considerations.

Hourly rates may be higher for independent contractors when compared to an employee’s wage rate. However, they are not entitled to other valuable employee benefits and protections. An independent contractor may not be entitled to:

  • Minimum wage rates;
  • Overtime pay;
  • Unemployment benefits;
  • Fringe benefits (like health insurance and pension benefits);
  • Legal protections against discrimination; and
  • Workers’ compensation benefits.

However, some laws include exceptions for independent contractors. For example, the New York State Human Rights Law (which prohibits employment discrimination) covers independent contractors “who are not themselves employers.”

What if I My Employer Misclassifies Me as an Independent Contractor?

As the “gig” or freelance economy has grown, more and more workers are categorized as independent contractors. This has led to genuine confusion about these workers’ legal rights. Increasingly, companies like Uber and Lyft face claims that their contractors are really employees.  

Other times, a dishonest employer will intentionally categorize an employee as an independent contractor to avoid wage and hour and other employment law obligations. This behavior is illegal and may result in strict criminal penalties and fines. The employee may also be entitled to compensation and damages.

Typically, an employee cannot waive his or her employment rights. A company also cannot change your employment status simply by having you sign a form agreeing to be an independent contractor. Even with a signed contract, the courts will apply the economic reality test.

In other words, do not assume that you are an independent contractor simply because your employer says you are. Instead, you should evaluate the terms and conditions of your work

If your employer misclassifies your work, you can file a complaint with New York’s Joint Enforcement Task Force. This task force enforces labor and employment laws and fights the misclassification of employees.  You also may have the right to file a lawsuit against your employer.

Contact Us

If you have questions about your status as an employee or an independent contractor, reach out to us. Our Bronx employee rights lawyers will assess your work situation, explain your rights, and help you pursue any legal remedies available to you.

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