[INFOGRAPHIC] How to Classify Independent Contractors Correctly

Beth Dean 09.19.23
Weekly Tip Blog Header - 2023-09-19 Independent Contractors (1)

When hiring workers, knowing whether they’re employees or independent contractors is essential. The difference between the two can significantly impact your business, including your tax liability, your liability for workers’ compensation claims, the worker’s rights and benefits, and your ability to control how your workers do their jobs.

Read all about it here, and check out our handy infographic at the end of this article for a quick cheat sheet!

The Difference Between Employees and Independent Contractors

Employees typically earn wages on a salary or hourly basis. They are subject to the employer’s control over how they do their work. This control includes things like the hours they work, the tasks they perform, and the tools and equipment they use. Employees are also generally entitled to benefits like health insurance, paid vacation, and sick leave.

Independent contractors, on the other hand, are not subject to the same level of control. They typically set their own hours, choose their own tasks, and use their own tools and equipment. Independent contractors are also responsible for their own taxes and benefits.

How to classify workers correctly:

As of 2021, the Department of Labor (DOL) emphasizes the two core factors for determining whether a worker is an independent contractor:

  • The degree of control that the client exercises over the worker. This factor includes whether the client sets the worker’s hours, tells the worker what to do, and provides the worker with tools and equipment.
  • The worker’s opportunity for profit or loss. This factor includes whether the worker is paid a fixed fee or a commission, and whether the worker has the opportunity to make a profit or loss on their work.

If a worker meets both of these core factors, they are likely to be classified as an independent contractor. However, the DOL also includes three variables that can help determine independent contractor status if the core factors are not clear:

  • The degree of permanence of the working relationship, considering whether the working relationship is definite in duration or sporadic.
  • Whether the work performed is part of an integrated unit of production; a larger project that is controlled by you.
  • Whether the worker is performing work that is outside the usual course of your business. Is the work something you would typically do yourself or have your employees do?

An employer should consider all of these factors in totality when classifying a worker. “The U.S. Supreme Court has on a number of occasions indicated that there is no single rule or test for determining whether an individual is an independent contractor or an employee for purposes of the FLSA.” (Source: DOL)

Possible changes

In late 2022, the DOL published a Notice of Proposed Rulemaking, which would change the criteria for determining whether a worker is an employee or an independent contractor. The DOL is currently reviewing the submitted comments, but there isn’t an ETA on any new regulations. We’ll watch for upcoming changes and keep you informed. 

In the meantime, the 2021 standard outlined above still applies. If you need help classifying your workers correctly, please get in touch with an attorney or your HR Business Partner at Nextep.

Independent Contractor vs. Employee Infographic:

Nextep Infographic - Employee vs Independent Contractor (2)

Also on Nextep

Get ready for changes! As of July 1, 2024, a new wave of state laws are set to go into effect across the country. These updates impact everything from worker protections and minimum wage to important regulations for businesses. Whether you’re an employer, employee, or simply a resident staying informed, this article will guide you […]
Read more
Exemptions from Overtime Pay: A Guide for Employers The Department of Labor (DOL) has announced significant changes to overtime regulations for salaried employees exempt from overtime pay. Here’s a breakdown of what you need to know and how to prepare: Key Changes: Increased Salary Thresholds: Currently, salaried workers earning less than $35,568 annually are exempt […]
Read more
A Game Changer for Employers The Federal Trade Commission (FTC) recently made a significant change regarding employers’ use of non-compete agreements. The final rule issued by the FTC prohibits the use of non-compete agreements for many workers, which is a departure from the longstanding practices of many companies. This decision is already facing legal challenges, […]
Read more
Key Points for Employers About the Latest Harassment Guidance The Equal Employment Opportunity Commission (EEOC) has recently updated its guidelines on workplace harassment enforcement. This was the EEOC’s first update in more than 30 years. The updates are intended to clarify and modernize existing standards. These changes take into account recent legal developments and the […]
Read more
What You Need to Know About PWFA The Equal Employment Opportunity Commission (EEOC) recently released the final regulations for the Pregnant Workers Fairness Act (PWFA). These regulations, taking effect on June 18, 2024, update the PWFA rules put into place in 2023 and significantly impact how employers with at least 15 employees accommodate workers with […]
Read more
When Addiction Strikes at Work The issue of addiction in the workplace presents a complex challenge for both employers and employees. The Americans with Disabilities Act (ADA) protects qualified individuals with disabilities, but active addiction itself isn’t necessarily covered. Here’s a breakdown of rights and responsibilities: Employee Rights Under the ADA Generally Not Covered: The […]
Read more
What is Considered “Reasonable”? What happens when an employee with a disability needs an adjustment to perform their job effectively? This is where reasonable accommodations come in. However, the question often arises: what exactly is considered “reasonable” under the Americans with Disabilities Act (ADA)? Striking a Balance The key is to find a balance between […]
Read more
It’s time for an ADA refresher! The Americans with Disabilities Act (ADA) is a cornerstone of civil rights legislation, ensuring equal employment opportunities for people with disabilities. As an employer, understanding your obligations under the ADA is crucial. Here’s a breakdown of the key points: What qualifies as a disability? The ADA defines a person […]
Read more
Forced to listen? Imagine this: Your boss calls a mandatory meeting. Instead of discussing work tasks, they spend the time telling you why you should support a political candidate or a particular religious view. That’s a captive audience meeting, and it’s becoming a hot-button issue. A captive audience meeting is a mandatory work meeting where […]
Read more
At some point during the election cycle, you may encounter employees wanting to display political propaganda at work.  This can range from flags and posters to social media posts and even conversations, and it can create a tense and uncomfortable atmosphere for colleagues with differing viewpoints. So, how do you maintain a respectful workplace while […]
Read more
As a presidential election year unfolds, employers must navigate the complex landscape of voting leave laws to uphold employees’ rights while ensuring compliance with state regulations. While federal law does not mandate time off to vote, many states have enacted specific provisions. Here’s what employers need to know to navigate this terrain effectively. Understanding State […]
Read more
An Employer’s Guide to Politics in the Workplace The current political climate can be divisive, and tension can easily spill over into the workplace. When employees hold vastly different political views, it can lead to arguments, hurt feelings, and a fractured work environment. So, what’s an employer’s responsibility when it comes to politics in the […]
Read more

Download Our App


Download the Nextep Mobile App in Apple iOS or Google Play