Independent Contractors vs. Employees: The Difference and Why it Matters

Updated: Oct 14

This article explores the differences between an independent contractor and an employee, and the respective tax and liability consequences on WA businesses.


Employees


The employer-employee relationship is often referred to as the master-servant relationship in case law. This is because an employee, while "on the clock," is under the control of the employer. The employer decides what the employee will work on that day, supervise the work, and even micro-manage the work if he so chooses. Moreover, employees are hired for general, ongoing services that may change as the relationship continues.


Independent Contractors


Independent contractors, on the other hand, are just that: independent. The business that hires an independent contractor does not micromanage their work. The independent contractor manages its own employees, pays its own bills, and oversees its own work, independent of the party who hired them. Moreover, they are hired for limited, specific jobs or assignments.


How do you form one relationship over the other?


Whether one is considered an independent contractor or an employee in Washington, depends on the nature of the relationship, regardless of what the parties call themselves. In other words, one can sign an agreement stating they are an independent contractor, but still be considered an employee under WA law.


What matters is the conduct of the parties. If you hire an "independent contractor," but control them the way an employer treats an employee, you may still have the legal responsibilities of a traditional employer.


"Whether one is considered an independent contractor or an employee in Washington, depends on the nature of the relationship, regardless of what the parties call themselves."

Why it matters:


As stated above, independent contractors manage themselves, independent of the hirer. The hirer's main responsibility is to the pay the independent contractor when the work is finished. But an employer-employee relationship comes with a number of legal responsibilities for the employer, such as:

  • vicarious liability for the actions of the employee during the course and scope of their work

  • employer's share of Medicare and Social Security taxes on payroll

  • deduction of income taxes

  • legal obligation to maintain WA worker's compensation insurance

  • owing back taxes if in the past the employee was paid as an independent contractor

  • being surprised to find out you are liable for injuries caused by an "independent contractor" because your business controlled them like an employee


If you have more questions about the nature of the independent contractor or employer-employee relationship under Washington law, please contact In-house | On-site to speak with a Vancouver WA attorney.





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