The difference between a contractor and an employee

Contractor vs. employee… which is which?

This is something that I’ve been thinking about, because I’ve been on both sides of the contractor equation. Years ago, every now and again I was hired as a contractor copywriter by companies, and I’ve hired contract copywriters from time to time to help with overflow (sadly, there hasn’t been much overflow the last year.)

Anyway, there’s always a lot of confusion with this. I admit, earlier, I didn’t know the rules either. It wasn’t until an audit by New York State that I knew the rules. So to help out, here’s the criteria, in general terms, of what separates a contractor from an employee:

1) Contractors set the pay rate.
2) Contractors set the timeframe.
3) Contractors do the job the way they wish to do it.
4) Contractors set the days and hours they work.

This is interesting in the copywriting business (and other “creative” type online/computer businesses), because, in general terms, companies that troll Craigslist (etc) looking for freelancers usually have a (low) rate of pay and fairly strict deadlines. Now I do understand that sometimes deadlines must be set – I’ve told people “I really need this in a week – is that do-able?” But in the end, it has to be the contractor’s call. And I’ve learned to let people who do work for me set the rate, too.

The above is usually an unwelcome surprise to many entrepreneurs / small companies, because they want the best of both worlds – the control of an employee, and the ease of working with a contractor (no taxes/workman’s comp/etc). I admit – that seems attractive to someone just starting out. Hire a person as an “independent contractor”, yet treat them like an employee. But you can’t have it both ways. You can’t hire a contractor, and then insist they come in 5 days a week, 9-5. If you want to do that, then what you have is an employee. Here’s the IRS page on the subject

The easiest way to think about this is hiring a contractor for your home – you hire them, but they set the pay, and they come when they wish. And if it rains, oh well, they may not show.

Or, look at it this way – you hire a contractor to do a specific (often one-time) job, and you hire an employee to fill a position.

Hope this helps someone, and keeps them from making a mistake. You can get burned really bad if you do this wrong.