How do independent contractors differ from employees?

California businesses are opting more and more to have independent contractors perform work for them. These people can perform much of the same work as regular employees but carry notable differences. This is how an independent contractor compares.

Understanding independent contractors

Independent contractors are considered freelancers and are not official staff members of any companies that recruit them to perform work. They are free to do business with any companies or individuals willing to pay them for their time and are not obligated to limit their work to anyone in particular. They are considered self-employed, which makes things more flexible for them.

Comparing independent contractors with employees

Unlike independent contractors, employees are regular staff members who are on a company’s payroll. They can be either full- or part-time and earn an annual or hourly salary; some are eligible for overtime. By contrast, independent contractors are not eligible for overtime.

A major difference between these two types of workers lies in how the wage and hour laws affect them. Employees have their taxes automatically deducted from their paychecks while independent contractors are responsible for paying their own self-employment estimated taxes. Where employees are required to complete Form W-4 when filing their taxes, independent contractors must complete Form W-9.

Depending on the nature of the work independent contractors perform, they might have to submit an invoice to be paid. In some cases, they might be paid via direct deposit or through a payment app such as PayPal.

Although many employees are allowed to work from home, the practice is more common for independent contractors. In some cases, such workers are also able to deduct certain business expenses from their taxes, maximizing their returns. For example, buying equipment out-of-pocket to perform their work.