Checklist: employee or contractor

5-step employee vs contractor checklist

This checklist helps you determine whether an employee or an independent contractor by reviewing factors such as the nature of the work, operational control, financial arrangements, tax responsibilities and the relationship between the parties.

Correct classification is essential to help companies assign the appropriate worker status and remain compliant with legal obligations. Use this checklist to assess your organisation’s circumstances and choose whether to engage an employee or an independent contractor.

1. Nature of the work

• Duration:

  • Employee: Continuous role, no fixed end date.

  • Contractor: Limited to a fixed term or specific project.

• Scope of work:

  • Employee: Carries out tasks under employer direction.

  • Contractor: Delivers services to meet a defined contract or project requirement.

2. Operational control

• Work hours:

  • Employee: Working hours determined by the employer.

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

• Location of work:

  • Employee: Based at the employer’s premises or an assigned site.

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

• Method of work:

  • Employee: Uses procedures and methods established by the employer.

  • Contractor: Applies their own methods to achieve the agreed outcomes.

3. Financial Control

• Payment:

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

  • Contractor: Paid per project or on a commission basis.

• Equipment and supplies:

  • Employee: Equipment and supplies provided by the employer.

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

• Profit or loss opportunity:

  • Employee: No direct exposure to profit or loss arising from the work.

  • Contractor: May realise a profit and bears the risk of loss on the engagement.

4. Relationship

• Exclusivity:

  • Employee: Normally works solely for one employer.

  • Contractor: May provide services to multiple clients.

• Benefits:

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

  • Contractor: Does not receive employer benefits and must manage their own insurance and retirement arrangements.

• Term of relationship:

  • Employee: Typically engaged on a long-term basis.

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

• Integration:

  • Employee: Role is integrated into the business operations.

  • Contractor: Work remains an independent contribution and is not woven into core operations.

5. Legal and tax implications

• Tax withholding:

  • Employee: Taxes are normally withheld and remitted by the employer.

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

• Legal liability:

  • Employee: Employer is generally liable for acts carried out during employment.

  • Contractor: Usually holds responsibility for their own actions and will often need separate insurance.

This checklist offers general guidance and may differ based on local employment law and the specific terms agreed in the contract. Always consult legal advisers for guidance tailored to your situation.

Why must companies ensure correct worker classification?

Incorrectly classifying employees as independent contractors can result in breaches of employment law, tax obligations and employee entitlements.

Companies should be cautious about worker misclassification as it can cause significant legal, financial and reputational harm.

Misclassification can trigger litigation, tax assessments and the obligation to provide benefits retroactively. Workers who are misclassified may lose out on essential protections such as private medical insurance and paid leave, while disputes can erode trust with staff and clients. Furthermore, regulatory attention can lead to audits and operational disruption and, in extreme cases, restrictions that hinder business expansion in certain jurisdictions.

For more information on the risks of misclassifying employees as contractors, refer to our comprehensive guide.

One platform to hire employees or contractors compliantly

Whether you need to hire employees, contractors, or both, Remote has you covered.

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

Remote’s employment experts understand local labour and tax rules and will help ensure you classify workers correctly as employees or contractors. We manage the legal, tax and payroll complexities so you can concentrate on growing the business without unnecessary administrative overhead.

Remote helps businesses manage misclassification risk effectively.

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