Employee versus contractor checklist

Five-step employee vs contractor checklist

This checklist helps determine if a worker is an Employee or an Independent contractor. It considers factors such as the nature of the work, operational control, financial arrangements, tax responsibilities and the working relationship.

Understanding the distinction is essential for companies to classify workers accurately and meet legal obligations. Use this checklist to assess your organisation’s requirements and decide whether to engage an employee or an independent contractor.

1. Nature of the work

• Duration:

  • Employee: Continuous, with no fixed end date.

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

• Scope of work:

  • Employee: Carries out tasks under the direction or control of the employer.

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

2. Operational control

• Work hours:

  • Employee: Hours are set by the employer.

  • Contractor: Selects their own working hours subject to project deadlines.

• Location of work:

  • Employee: Performs work at the employer’s premises or another specified site.

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

• Method of work:

  • Employee: Adheres to procedures and methods defined by the employer.

  • Contractor: Employs their own methods to deliver the agreed results.

3. Financial Control

• Payment:

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

  • Contractor: Remunerated per project or via commission.

• Equipment and supplies:

  • Employee: Equipment and supplies are supplied by the employer.

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

• Profit or loss opportunity:

  • Employee: Does not bear direct profit or loss risk from the work.

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

4. Relationship

• Exclusivity:

  • Employee: Usually engaged exclusively with a single employer.

  • Contractor: May serve several clients concurrently.

• Benefits:

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

  • Contractor: Does not receive employer benefits and arranges their own insurance and retirement planning.

• Term of relationship:

  • Employee: Generally expected to continue long term.

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

• Integration:

  • Employee: Tasks are integrated into the organisation’s operations.

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

5. Legal and tax implications

• Tax withholding:

  • Employee: Employer withholds taxes.

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

• Legal liability:

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

  • Contractor: Typically responsible for their own actions and often requires their own insurance.

This checklist provides general guidance and may differ according to local employment laws and the specific terms of the engagement. Always seek legal advice for your particular circumstances.

Why should companies ensure workers are classified correctly?

Misclassifying employees as independent contractors can result in breaches of employment legislation, unmet tax obligations and failure to uphold employee rights.

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

Misclassification can trigger litigation, tax assessments and obligations to retroactively provide employee benefits. Workers who are wrongly classified may miss out on essential protections such as private medical insurance and paid leave, and disputes can damage a company’s reputation, eroding trust with staff and clients. Regulators may commence audits and enforcement actions, disrupting operations and, in severe cases, impose restrictions that limit expansion in certain regions.

For further detail on the risks of misclassifying employees as contractors, see our comprehensive guide.

One platform to hire employees or contractors compliantly

Whether you hire employees, contractors or both, Remote supports you.

Our global HR services simplify hiring and paying talent compliantly from anywhere, while maintaining a high-quality experience for your whole team.

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

Remote helps businesses manage misclassification risks smoothly.

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