independent contractors

Navigating the Lines Between Independent Contractors and Employees in Maryland

As an employer, it’s critical that you understand the difference between independent contractors and employees. While it might seem trivial, this distinction makes a massive difference in the tax filing process and what wage and employment laws apply to different employees at your business. What are some of the differences between the two, and how can you tell which one you are employing?

How Work Is Done and What It’s Done With

One key difference between independent contractors and employees is how work is performed and what is performed. In most cases, an employer and employee relationship can be established when you are dictating and directing the person performing the services in what needs to be done, what means are used to accomplish the goal, and how it should be done. In other words, you are not just telling the worker what needs to be done, but how it must be done.

For example, a restaurant wants to have its bartenders be considered independent contractors. If the restaurant wants to set working hours, provide all the equipment used, require the bartenders to wear uniforms, and require them to attend staff meetings, they have employees instead of contractors.

The Type of Wage Paid

The lines between independent contractors and employees can become blurred when thinking about how wages are paid, but it is one good way to provide yourself with a benchmark for how you are classifying employees. Most employees are paid a flat wage per hour of work or a salary. Even if you also give commissions and bonuses, this type of payment is considered an employee-and-employer relationship by the IRS.

For independent contractors, payment is generally a set rate after a task or job is completed. This rate could be a certain amount per hour that is billed to the company, or it could be a flat rate for the specific project.

Who Pays Expenses

If you employ someone, you will provide employees with the resources that they need to get the job done without paying for them out-of-pocket. If an employee does buy something out-of-pocket, it’s reimbursed. Independent contractors are required to cover their own expenses throughout the course of the project. For example, if someone is making a wood bench for your lobby, they will cover the cost of woodworking materials, the wood itself, and any tools required to finish the job. You will pay the independent contractor for the finished project. However, if this was an employee, you would supply them with the machinery, tools, wood, and all other supplies to finish the job.

What Happens If You Misclassify a Worker?

Misclassification is a serious risk, and it’s become more common with the flourishing of the gig economy and more businesses working with freelancers and independent contractors. Some of the consequences of misclassification include:

  • Wage law violations
  • Tax penalties
  • I-9 violations
  • Shortfalls in unemployment insurance
  • Lawsuits due to exclusion from benefit plans
  • Worker’s compensation violations
  • FMLA Act violations
  • WARN Act violations
  • And more!

We can help you make sure that your business is following all classification rules.

Contact Mobley & Brown, LLP for Help With Employment Law

If you are a business and concerned about misclassification of independent contractors or employees, we are here to help. Our experienced legal team is looking forward to working with you to meet your needs. Call us now at (410) 385-0398.