Contractor or Employee? What’s the Difference – and Why It Matters

You know you need to hire. But should you bring a contractor or employee on board? As leading Houston recruiters, Murray Resources knows there are pros and cons to both.

For instance, with a contractor, you can save on labor costs and overhead, reduce your liability as an employer, and enjoy more flexibility. In fact, according to some reports, companies can save as much as 30% by avoiding payroll taxes, unemployment insurance, worker’s compensation coverage, and benefits normally provided to full-time employees.

On the other hand, sometimes you need a long-term solution and a regular, full-time employee is the answer. Employees are also likely going to be more loyal to your company than a contractor, helping you to achieve and sustain long-term business objectives.

Regardless of what you do decide, it’s important to ensure that you’re classifying these workers correctly – or you can end up in legal hot water.

Misclassification of an employee as a contractor can lead to costly back taxes (income, Social Security and Medicare) along with penalties. In addition, you might also have to reimburse them for the wages that should have been paid to them under the Fair Labor Standards Act, such as overtime and minimum wage.

It’s much easier to classify employees and contractors correctly from the start. And it doesn’t matter what your contract or written agreement with a worker says. Even if you both agree on the terms of the relationship, a worker’s status as an independent contractor rather than an employee is actually determined by several other factors.

According to the U.S. Small Business Administration, here’s a look at them:

An Independent Contractor:
• Operates under a business name
• Has his/her own employees
• Maintains a separate business checking account
• Advertises his/her business’ services
• Invoices for work completed
• Has more than one client
• Has own tools and sets own hours
• Keeps business records

An Employee:
• Performs duties dictated or controlled by others
• Is given training for work to be done
• Works for only one employer

The IRS currently estimates that approximately 15% of U.S. workers aren’t classified correctly. And, more and more, they’re conducting surprise audits to go after companies for misclassification. It’s up to you to ensure you’re on firm legal ground and properly classify and document each and every person who works for you – whether on a full-time or contract basis.

Do you need help hiring contractors and employees – and ensuring you’re classifying them correctly? Call the experts at Murray Resources. As leading Houston recruiters, we can take the hassle out of hiring  – all so you can focus on other priorities while still gaining access to top quality talent. Contact us today if you’d like to learn more.