Independent Contractor vs. Employee

  • Published Mar 16, 2022

Every employee is different, and the ways we want to work are continuing to evolve. It’s safe to say, though, that gone are the days of business suits and 9-to-5 jobs. With the rise of the gig economy and the increased desire across all industries to have more freedom in the workplace, many workers and business owners are having to familiarize themselves with different types of employment definitions.

But gig-worker? Freelancer? What does this all mean, and, more specifically, what does it mean for the benefits and protections you as an employer have to provide? More people than ever are being considered independent contractors, but how is that different from an employee? And what do those definitions mean when it comes to important things such as paying taxes and getting insurance coverage?

Let’s dive into the world of independent contractors vs. employees, what makes them different, and how those differences impact your business.

Who is an Independent Contractor?

Independent contractors are defined by the IRS as individuals who are self-employed. In other words, their earnings are subject to self-employment taxes and their work cannot be controlled by an employer. For example, an independent contractor can’t be told how, when, and what will be done in regards to a position. Independent contractors and their services can’t legally be controlled by the employer.

Who is an Employee?

Employees are defined by the IRS as those who perform work for an employer who controls what and how will be done in terms of the services performed. For example, as an employee, you will not have the freedom to control things such as scheduling, methods of doing your job, and the like. Employees often have insurance provided for them through their employer and their income may be subjected to FICA and income tax withholding.

What is the Difference Between an Independent Contractor vs. Employee?

These days independent contractors are more common than ever, so it can get a bit murky when trying to determine what category a worker falls in. As a business owner, you’re juggling a lot. The last thing you need is confusion about how to categorize your employees. If you’re having trouble distinguishing between independent contractors vs. employees, you’re not alone. In fact, the IRS has a page dedicated to helping business owners and workers determine between independent contractors and employees. According to the IRS, the following can be helpful questions to consider when determining whether someone is an independent contractor or an employee:

  • Does the business control what/how the worker does their job?
  • Does the business control essential aspects of the worker’s job such as payroll, expenses, tools, etc?
  • Does the business provide benefits?
  • Does the business rely on the worker to perform key actions/duties?

When it comes down to truly establishing whether someone is an independent contractor vs. an employee, the entire business/worker relationship must be considered. Each situation is different, but primarily the extent to which a business controls, or has a right to control, the worker is key to determining which category someone falls in. If you are unsure whether someone is an independent contractor vs. an employee, you should consult a lawyer.

How Does Workers’ Comp for Independent Contractors and Employees Differ?

It’s important to know the difference between independent contractors and employees for many reasons, especially when it comes to workers’ comp coverage.

Workers’ compensation insurance provides coverage for workers who are injured on the job. It pays for medical bills, lost wages, death benefits, and more for injuries and illnesses that arise in the course and scope of employment. It’s a must-have for business owners. However, independent contractors are not eligible for workers’ comp. In nearly all states, workers’ comp is legally required for businesses with employees, however, those laws often do not apply to those considered to be independent contractors. That’s why it’s essential that businesses and workers have a clear understanding of independent contractors vs. employees.

How Can Cerity Help?

At Cerity, we know how complicated business insurance can be. That’s why we built a better, more affordable approach to workers’ compensation coverage. We aim to not only provide comprehensive coverage but also to assist business owners in navigating the often confusing world of insurance. Whether you have employees, independent contractors, or both, we can help get you a quote and provide instant policies to protect yourself, your business, and your team.

Simply go to our free online quote tool. Tell us a little bit about your business to get an affordable rate, and you can buy a policy online in minutes.

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Grab your free quote today.

It only takes a few minutes, whether you’re already covered or just getting started.


The information provided is intended to provide a general overview. This information is not legal advice and should not be relied on as such. Cerity® makes no warranties for the accuracy, adequacy, or completeness of the information provided, and will not be responsible for any actions taken based on the information contained herein. If you have legal questions or need legal advice, please consult an attorney.