Employee vs. Contractor Checklist

5- step Employee vs. Contractor Checklist

This checklist will help you differentiate between an employee and an independent contractor based on various factors such as the nature of work, operational control, financial considerations, tax responsibilities, and the relationship between the parties. 

Understanding the difference is crucial to helping companies classify their workers correctly and ensure compliance with legal requirements. Use this checklist to evaluate your organisation’s needs and make an informed decision on whether to hire an employee or an independent contractor.

1. Nature of the work

• Duration:

Employee: Ongoing, indefinite duration.

Contractor: Fixed-term, project-specific.

• Scope of work:

Employee: Performs duties dictated or controlled by others.

Contractor: Provides services that meet a specific contract or project requirement.

2. Operational control

• Work hours:

Employee: Set by the employer.

Contractor: Chooses their own hours, within project deadlines.

• Location of work:

Employee: Works at employer’s premises or specified location.

Contractor: Often works remotely or at a location of their choosing.

• Method of work:

Employee: Follows procedures and methods set by the employer.

Contractor: Uses their own methods to achieve outcomes.

3. Financial Control

• Payment:

Employee: Paid on a regular basis (e.g., pay or hourly wage).

Contractor: Paid per project or on a commission basis.

• Equipment and supplies:

Employee: Provided by the employer.

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

• Profit or loss opportunity:

Employee: No direct risk of profit or loss from the work.

Contractor: Has the opportunity to make a profit and is at risk of loss from the work.

4. Relationship

• Exclusivity:

Employee: Typically works exclusively for one employer.

Contractor: May provide services to multiple clients.

• Benefits:

Employee: Receives benefits such as health insurance, pension, and paid leave.

Contractor: Does not receive benefits; handles their own insurance and retirement planning.

• Term of relationship:

Employee: Expected to be long-term.

Contractor: Duration is limited to the term of the contract or project.

• Integration:

Employee: Work is integrated into the business operations.

Contractor: Work is an independent contribution, not integrated into business operations.

5. Legal and tax implications

• Tax withholding:

Employee: Taxes are withheld by the employer.

Contractor: Responsible for their own tax filings and payments.

• Legal liability:

Employee: Employer is liable for actions performed during employment.

Contractor: Typically holds liability for their own actions and may need their own insurance.

This checklist is a general guideline and may vary depending on local labour laws and the specific terms of the work agreement. Always consult legal professionals for advice on your specific situation.