Understanding the difference between independent contractors and employees

On Behalf of | Aug 31, 2019 | Business Formation | 0 comments

Small business owners may not have the financial means to hire many employees based in Illinois. Hiring independent contractors could be a good way to get around this. That said, unfamiliar employers and entrepreneurs may not be sure if a person is an independent contractor or an actual employee.

Fundera aims to clear up confusion. Knowing the difference between employees and contractors can keep an employer out of legal trouble.


One of the easiest ways to determine if a person is an employee or independent contractor is to take note of the tax situation. With regular employees, it is the company’s responsibility to handle the payment of all Medicare, state/local, Social Security and income taxes.

On the other hand, contractors handle their own taxes, taking it from their payment. This reduced degree of responsibility is one of the reasons companies of all sizes opt to work with contractors rather than regular employees.


As noted by the U.S. Department of Health & Human Services, hiring methods help determine whether someone is a contractor or traditional employee. Employees often fill out applications, work with HR and provide such information as marital status and date of birth. Independent contractors may only meet with a manager or department head. Rather than an application, contractors agree to and sign contracts.

Work performance

As for the work performed, contractors have all the say in where, how and when they work. Employees have to adhere to a specific work schedule and performance requirements. On a related note, independent contractors provide their own equipment and materials while employees rely on the company to provide them with everything necessary to perform the work.

An employee receives a salary or hourly wage. Contractors receive daily, weekly, hourly or total amount payments.