Employee or contractor checklist

5-step employee or contractor checklist

Use this checklist to decide if a worker is an employee or an independent contractor by considering factors like the type of work, operational control, financial arrangements, tax responsibilities and the relationship between the parties.

Knowing the distinction is essential for classifying workers correctly and meeting legal obligations. Use this checklist to assess your organisation’s needs and decide whether to engage an employee or an independent contractor.

1. Type of work

• Duration:

  • Employee: Ongoing, indefinite.

  • Contractor: Time-limited and tied to a specific project.

• Scope of work:

  • Employee: Carries out duties directed or controlled by others.

  • Contractor: Delivers services to meet a particular contract or project brief.

2. Operational control

• Work hours:

  • Employee: Hours are set by the employer.

  • Contractor: Sets their own hours, within agreed project deadlines.

• Location of work:

  • Employee: Usually works at the employer’s premises or a specified site.

  • Contractor: Frequently works remotely or from a location they choose.

• Method of work:

  • Employee: Follows procedures and methods set by the employer.

  • Contractor: Chooses their own approach to deliver the agreed outcome.

3. Financial control

• Payment:

  • Employee: Receives regular pay (for example a salary or hourly wage).

  • Contractor: Paid per project or by commission.

• Equipment and supplies:

  • Employee: Typically supplied by the employer.

  • Contractor: Uses their own tools, equipment and materials.

• Profit or loss opportunity:

  • Employee: Has no direct exposure to profit or loss from the work.

  • Contractor: Can make a profit but also bears the risk of loss on the work performed.

4. Relationship

• Exclusivity:

  • Employee: Will often work solely for one employer.

  • Contractor: May supply services to a number of clients.

• Benefits:

  • Employee: Typically receives benefits such as private medical insurance, pension and paid leave.

  • Contractor: Does not receive employer benefits and is responsible for their own insurance and retirement planning.

• Term of relationship:

  • Employee: Generally expected to be long-term.

  • Contractor: Engagement lasts only for the contract or project term.

• Integration:

  • Employee: Work is integrated into the business operations.

  • Contractor: Provides an independent contribution, not deeply integrated into daily operations.

5. Legal and tax implications

• Tax withholding:

  • Employee: Taxes are withheld by the employer.

  • Contractor: Responsible for their own tax returns and payments.

• Legal liability:

  • Employee: The employer is generally liable for acts carried out in the course of employment.

  • Contractor: Usually accepts liability for their own actions and may need separate insurance cover.

This checklist provides general guidance and may differ depending on local employment laws and the terms of a specific agreement. Seek advice from legal professionals for your particular circumstances.

Why should companies ensure workers are classified correctly?

Misclassifying employees as independent contractors can lead to breaches of employment law, tax liabilities and loss of employee entitlements.

Businesses should be alert to worker misclassification as it can cause serious legal, financial and reputational harm.

Consequences may include litigation, tax penalties and being required to backpay employee benefits. Workers who are misclassified can miss out on essential entitlements like private medical insurance and paid leave, and disputes can damage a company’s reputation with staff and clients. Misclassification can also prompt regulatory scrutiny, audits and operational disruption, and in extreme cases result in restrictions on trading in some jurisdictions that limit growth.

To learn more about the risks of misclassifying employees as contractors, see our comprehensive guide.

A single platform to hire employees or contractors compliantly

If you need to hire employees, contractors or both, Remote can help.

Remote’s global HR services simplify hiring and paying talent compliantly from anywhere in the world while ensuring a high-quality experience for your team.

Remote’s employment specialists understand local labour and tax rules, helping you to classify workers correctly as employees or contractors. We handle the legal, tax and payroll compliance complexities so you can focus on growing your business without the administrative load.

Remote helps businesses manage misclassification risk with confidence.

Find out more about our global HR services, or contact us to get started today!