Employee V. Independent Contractor: The Differences

There is a lot of confusion about the difference between being an employee and being an Independent Contractor. Other than the actual work performed, there is a significant difference. Some companies come very close to crossing the line between designating employee or Independent Contractor status. I worked for a few companies that treated you as if you were an employee, but labeled you an Independent Contractor. Unfortunately, there seems to be little you can do about this.

Let's look at some of the differences between being an employee and an Independent Contractor.

Taxes and insurance - The biggest difference is that you will be responsible for paying your own federal and state taxes and providing your own insurance when you are an Independent Contractor.

Work schedule - As an Independent Contractor you are in control of your own work hours. Some companies will allow you to work whenever, although this 'whenever' is contingent on your actually working. You won't work for long for those companies if your 'whenever' turns out to be never. Other companies will provide a schedule and you will choose your own work hours within that schedule. As an employee, you will be given a set schedule to work - some companies will allow you to choose which schedule you prefer to work, if they have various work schedules, such as morning shifts, evening shifts, etc.

Expense - As an Independent Contractor, you are responsible for paying any expenses incurred. Do not expect the company to reimburse you for many costs or expenses. Some will reimburse for certain expenses, but not all of them will reimburse. Remember, you can always apply the expenses as a tax deduction. I have come across a couple of companies where you are an employee but still incur expenses; this seems a little unfair, because regular employees do not usually have to pay for equipment, software, or anything directly relating to working, other than gas, while on the job. Just remember, you can still deduct these expenses.

Training - As an Independent Contractor, there may or may not be training provided. It is not guaranteed by a company. This is where your specific skills become very important. Many companies that hire Independent Contractors to work at home hire them on the basis that they are skilled for the position and can perform the duties without much training and direct supervision. The company expects the person to have experience in the position and pretty much be ready to start working, either without training or with minimal training. Nevertheless, many companies listed in this book as hiring Independent Contractors do offer some sort of training.

Supervision - As an Independent Contractor, you will usually not have direct supervision provided. You will have some, but you need to be able to work independently in your home-based job. You will have a contact person, but you will basically be your own boss, which means you also need to know your job and perform it to the best of your ability. Employees, on the other hand, will have a supervisor, manager or team leader, but of course, you still won't have someone right there beside you when you are an employee working from home.

Consistency - Consistent work can be a concern for many who work at home, particularly for those who are Independent Contractors. There can be electricity interruptions, health interruptions, and other unforeseen disruptions in your work, and the work itself may suddenly be terminated.

Pay - The pay for work at home jobs varies, based on the company, from per hour, per call, per minute, to per document. The pay usually ranges from $7 to $20 an hour, depending on the type of work, the company, and the position. Most of the time, employees will be paid hourly, and for Independent Contractors the pay will be per hour, per call, per document, etc. The pay issue can be a disadvantage to some, because it would seem that these companies could and should pay more. Come on, $8 or $9 an hour, for work from home? The company doesn't have to pay for office space, equipment, and in the case of Independent Contractors, taxes or benefits, yet they want to pay almost minimum wage. It's really unfair, but the desire to work from home usually outweighs the conflict with pay.

Always have a backup plan (this can be for any job). I used to believe that work at home jobs were more unstable than onsite jobs, but the last couple of years have shown that this is not the case. Stability with a company is a misnomer - a rare commodity nowadays. Major corporations and small companies have laid off workers, closed down offices and branches with little or no warning. And many people who have invested years into companies are finding themselves unemployed and with very little to show for their dedication. Even 401K plans and other saving plans have been affected by the economy. Many people who do work at home have more than one work at home job, which is easier to do than working two outside jobs. Keep in mind that some work at home jobs operate based on a seasonal, overflow or client-based need, so it is necessary to always have more than one work at home job.

These are the major differences between being an employee and an Independent Contractor. Some people think being an employee means stability and that may be, but look at our economy: does it seem like an employee/employer relationship is all that stable? I would say not. The benefits of being an employee would include not worrying about paying taxes and insurance benefits, and this is a double-plus for some. Of course, some employee jobs are more stable than those of an Independent Contractor, but being an Independent Contractor allows you more freedom over your work, schedule and life!