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3 Categories to Consider to Avoid Misclassifying Workers: Employee or Independent Contractor

Updated: Aug 2, 2023

Some businesses may hire both independent contractors and employees, and they may perform similar work. There are key legal differences between an employee and an independent contractor. It is critical for business owners to accurately determine which classification to give.

Misclassifying a worker can result in some serious legal issues. Business owners can avoid these problems by accurately determining which classification to give. The main difference between the two is that employees perform services under the business’s control. The business determines what work will be done and how it will be done. While independent contractors work in independent trade in which they offer services to the public.

Three Categories

The relationship between the worker and the business will ultimately determine if the worker is an independent contractor or an employee.

Behavioral Control – The company has the right to control what the worker does or how the worker does the job.

Financial Control – The company oversees and makes decisions about the financial and business aspects of the worker’s job. This includes how the worker is paid, expense reimbursements, who provides tools and equipment.

Relationship of the Parties – The company provides written contracts such as employee benefits, insurance, vacation pay, etc.

Misclassifying A Worker

If a company does misclassify a worker as an independent contractor, it will adversely affect employees because the employer’s share of taxes is not being paid and the employee does not have their share withheld from their paycheck.

Generally, an employer must withhold and pay income taxes, Social Security, and Medicare taxes, as well as unemployment taxes for their employees. So, if a company improperly classifies a worker as an independent contractor, the company can be held liable for the employment taxes that were not withheld. If a worker suspects that they have been misclassified as an independent contractor, they should obtain a determination of worker status from the IRS.

Contact Us

If you suspect you have been misclassified or you are an employer who has concerns about the classifications of your own workers, contact the BrightBooks team at or fill out our contact form.

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