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Independent Contractors vs. Employees: What’s the Difference and How it May Affect Your Taxes

May 17, 2023

A business owner must know the difference between independent contractors and employees. The classification of your workers can have a significant impact on your business, including taxes, benefits, and legal obligations. 

This blog post will explore the key differences between independent contractors and employees to help you make informed decisions.

Independent Contractors

An independent contractor is a self-employed individual or company that provides services to another company under a contract. Independent contractors are responsible for their taxes, benefits, and business expenses. They have more control over their work schedule, equipment, and work processes and are not entitled to employee benefits.

Independent contractors are typically hired for a specific project or task, and their contract will specify the scope of the work, payment terms, and other details. They are not considered employees of the company they are working for, and as such, they are not covered by employment laws such as minimum wage and overtime pay.


On the other hand, employees work directly for a company and are subject to the company’s rules and regulations. They are typically paid a salary or hourly wage and are entitled to employee benefits such as health insurance, paid time off, and retirement plans. Employees are also protected by employment laws such as minimum wage, overtime pay, and anti-discrimination laws.

Employees are expected to follow the company’s policies and procedures and are typically given a job description outlining their responsibilities and duties. They may work full-time or part-time and are generally expected to work a set schedule.

Determining Classification

The classification of workers as independent contractors or employees is determined by several factors, including the degree of control the company has over the worker, the worker’s financial dependence on the company, and the nature of the work being performed. The IRS has specific guidelines for determining worker classification, and it’s essential for companies to understand and follow these guidelines to avoid legal and financial consequences.


Understanding the difference between independent contractors and employees is essential for any business owner. The classification of workers can significantly impact a company’s taxes, benefits, and legal obligations. It’s essential to consult with legal and tax professionals to ensure that your workers are classified correctly and that your business complies with all relevant laws and regulations.

Please contact us today if you have questions about this topic or other financial matters.  We have many legal and tax professionals we work with regularly and would be happy to make an introduction on your behalf.