The American workforce is changing. Until recently, most workers pursued a single, long-term position at a company where they would stay for years, if not decades. While these more traditional career tracks still exist, many more workers are now foregoing being an employee and opting for freelance or independent contractor work.
As of today, more than 57.3 million Americans — over 36% of the workforce — are freelancers or independent contractors. By 2027, it’s predicted that over half of the American workforce will have gone in that direction.
How you classify those doing work for your affects the financial and legal obligations that you have to the workers and to the government - making distinction between freelancers, independent contractors, and employees is more important now than ever for your business.
In this post, we help you navigate the different classifications that might apply to your workforce, and also explain why the different classifications matter so much for your company.
There are three primary types of workers that your company is likely to hire: freelancers, independent contractors, and employees. Employees receive the greatest amount of protection, and require you to comply with numerous government regulations. Let’s discuss the different categories so that you can understand what type of worker you’ve hired.
While you’ll likely see and hear the term freelancer being used interchangeably with independent contractor, there are some key differences between the two. Characteristics of freelancers include the following:
Like freelancers, independent contractors work with a similar level of autonomy. The main difference between the two categories is that independent contractors tend to work with one company at a time for an extended period. From the perspective of your company’s legal obligations, your company owes a freelancer the same type of protection that an independent contractor—as opposed to an employee—receives.
The distinction between independent contractor and employee is so important that the IRS even provides specific information on how to make that determination. Unfortunately, whether someone is an employee or independent contractor isn’t a clear-cut analysis. The category that someone falls into is determined on a case-by-case basis through a multi-factor analysis. When determining which category one of your workers falls into, look at the following:
As a business owner, you need to know whether someone working for you is an employee. If you misclassify a worker, you may mistakenly fail to pay Social Security, Medicare taxes, and unemployment taxes. If you don’t set aside the right amount of money, then you could get hit with a tax bill that could make it difficult to meet your monthly financial obligations.
What’s more, if you have employees, you must have Workers’ Compensation Insurance. In the state of California, you can even face criminal penalties when you fail to do get it
At Leap | Carpenter | Kemps Insurance Agency, we know the importance of understanding who your employees are and how to meet their needs (as well as your own legal obligations). Whether you’re looking for help for Employment Practices Liability, a Workers’ Compensation Policy, or health insurance plans, we have you covered. Contact one of our knowledgeable agents today.
Leap | Carpenter | Kemps Insurance Agency provides Commercial Business Insurance, Employee Benefits, Life and Health Insurance, and Personal Insurance to all of California, including Merced, Atwater, Los Banos, Mariposa, Madera, Fresno, Modesto, Turlock, and Stockton.
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