Depending on the size of one’s business, an owner may have employees that work a variety of different hours based on the needs of the company. In Michigan and elsewhere, a business owner will have to choose under which employment status he or she will hire — full or part time employee, or temporary or seasonal worker. Those who are there intermittently, though, may also be independent contractors. In any situation, individual employment contracts should reflect the proper work status.
There can be a fine line between categorizing a worker as an employee or an independent contractor. Both types of workers perform similar tasks, but at the end of the day, an employer does not necessarily have control as to how an independent contractor will complete his or her designated tasks. This question of control matters quite a bit to the Internal Revenue Service.
For those who are hired as employees of companies, employers’ relationships with these individuals will by guided by certain federal and state laws. A person hired with the formal status of an employee may be granted a variety of benefits and will also have some tax concerns handled by his or her employer. An independent contractor, on the other hand, will have to file and pay a self-employment tax as well as income tax, which creates less work for the company. Along with that, a business owner is not under any obligation to offer benefits or other perks to a person in this position.
There are both good and bad things that can be said about hiring independent contractors versus employees. A business owner will have to decide which type of working relationship best fits his or her needs. However, identifying a worker’s status in employment contracts is a must for Michigan business owners and may help prevent problems in the future. Legal assistance is available to ensure contracts properly represent an employee’s status.
Source: Forbes, “Employees Or Independent Contractors? Categorizing Workers Properly“, Kelly Phillips Erb, Aug. 21, 2015