Employee versus contractor checklist

Five-step employee versus contractor checklist

Use this checklist to determine whether a worker should be classified as an employee or an independent contractor by looking at factors such as the type of work, operational control, financial arrangements, tax responsibilities, and the relationship between the parties.

Being clear about the distinction helps organisations classify workers correctly and stay compliant with legal obligations. Use this checklist to assess your organisation’s situation and decide whether to engage an employee or an independent contractor.

1. Nature of the work

• Duration:

  • Employee: Continual role with no defined end date.

  • Contractor: Engaged for a fixed period or a specific project.

• Scope of work:

  • Employee: Carries out tasks that are directed or supervised by the employer.

  • Contractor: Delivers services to fulfil the terms of a contract or project brief.

2. Operational control

• Work hours:

  • Employee: Assigned by the employer.

  • Contractor: Sets their own schedule, subject to project deadlines.

• Location of work:

  • Employee: Typically required to work at the employer’s site or a specified place.

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

• Method of work:

  • Employee: Works according to employer-defined procedures and processes.

  • Contractor: Chooses their own approach to achieve the agreed results.

3. Financial control

• Payment:

  • Employee: Receives regular pay, such as a salary or hourly wage.

  • Contractor: Is compensated per project or via commission arrangements.

• Equipment and supplies:

  • Employee: Typically provided with tools and equipment by the employer.

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

• Profit or loss opportunity:

  • Employee: Bears no direct commercial risk for profit or loss from the assigned work.

  • Contractor: Can earn a profit but also faces the risk of loss related to the work performed.

4. Relationship

• Exclusivity:

  • Employee: Usually works solely for a single employer.

  • Contractor: Often provides services to several clients.

• Benefits:

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

  • Contractor: Is responsible for their own insurance and retirement planning and does not receive employer-provided benefits.

• Term of relationship:

  • Employee: Generally expected to remain long-term.

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

• Integration:

  • Employee: Tasks are woven into the company’s regular operations.

  • Contractor: Delivers independent work that is not integrated into daily business processes.

5. Legal and tax implications

• Tax withholding:

  • Employee: Employer withholds taxes on behalf of the employee.

  • Contractor: Responsible for filing and paying their own taxes.

• Legal liability:

  • Employee: Employer is usually responsible for acts performed in the course of employment.

  • Contractor: Generally holds responsibility for their own actions and may require their own insurance cover.

This checklist provides general guidance and may differ according to local employment legislation and the particular terms agreed in a contract. Always seek advice from legal experts for your specific circumstances.

Why should companies make sure workers are classified properly?

Improperly classifying employees as contractors can cause breaches of employment legislation, tax obligations, and entitlements for workers.

Businesses need to be vigilant about worker misclassification because it can produce significant legal, financial, and reputational fallout.

Misclassification can trigger litigation, tax liabilities, and obligations to retroactively provide employee benefits. Workers who are misclassified may lose out on important protections such as private medical insurance and paid leave. Legal disputes can harm a company’s reputation, eroding trust among staff and clients, while regulatory scrutiny can lead to audits, operational disruption, and in extreme cases, restrictions that limit business expansion in certain jurisdictions.

For a deeper look at the dangers of classifying employees as contractors, see our comprehensive guide.

One platform to hire employees or contractors compliantly

Whether you need to hire employees, contractors, or both, Remote can support you.

Our global HR services simplify hiring and paying talent compliantly from any location, while delivering a quality experience for your entire team.

Remote’s employment specialists are well versed in local labour and tax laws, helping you classify workers correctly as employees or contractors. We manage the legal, tax, and payroll complexities so you can concentrate on growing your business without the administrative load.

Remote transforms how businesses address misclassification risks with minimal friction.

Learn more about our global HR services or contact us to get started today!