Independent Contractor vs. Employee


What’s the difference between an independent contractor and an employee in the state of Arizona? Many employers in the state label their workers as independent contractors as a method to cut costs for the business. Many contractors receive fewer benefits and lower wages than they deserve due to this classification.

For these reasons, it’s important to understand the differences between an independent contractor and an employee. While independent contractors do have more freedom and supervise their own work, this classification comes with significant drawbacks. 

If your employer has subjected you to unfair treatment, an employment law attorney might be able to help you get the compensation you’re entitled to. The employer may also receive significant penalties and fines for misclassifying you.

Points to Keep in Mind Regarding Independent Contracting

Employers must pay half of each employee’s Medicare and Social Security taxes. By classifying an employee as a freelancer or independent contractor, they can eliminate this burden and save money. Through this method, they ensure they won’t need to cover unemployment insurance or worry about break pay, overtime, minimum wage, or sick pay. However, businesses in Arizona must follow certain guidelines to determine whether a worker is a contractor or employee.

Independent Contractor Criteria

Here are some of the criteria that a person must meet to qualify as an independent contractor: 

  • Provides a service that the company can’t provide themselves
  • May not be fired (although clients can terminate contracts)
  • Supervises their own work (rather than a boss doing so)
  • Provides service for ordinary members of society
  • Covers their own costs for travel and business
  • Provides their own materials and tools for work
  • Has at least two or more clients or customers
  • May hire other workers to help them with their job
  • Decides their own hours of operation
  • Doesn’t undergo training for work

This list isn’t exhaustive as other factors can qualify someone as an independent contractor. If most of these factors aren’t met, a worker most likely counts as an employee for federal and state tax considerations.

Consequences of a Contractor Classification

While being an independent contractor sounds great on the surface and you have some advantages, it also comes with unique consequences. Here are some to consider: 

  • You must pay both portions of Medicare and Social Security taxes
  • You won’t have access to workers’ compensation if you get injured
  • You won’t receive health insurance coverage from the company
  • You aren’t protected by Arizona minimum wage laws
  • You don’t get overtime, breaks, or paid sick days
  • You cannot access unemployment benefits

Many workers are punished by an independent contractor status just because their employer is trying to cut corners and save money. Keep in mind that you should be officially considered an employee unless you’ve declared your independent contractor status at work.

What rights do I have an as independent contractor?

Contractors don’t count as employees according to the FLSA (Fair Labor Standards Act). As a result, they aren’t entitled to the same protections and rights that an employee has. In return for receiving fewer benefits and protections, an independent contractor has more freedom to receive compensation outside of standard payroll and can decide their own hours. 

As a contractor, you have the right to organize and can join a union if you want to. Just keep in mind that unions for contractors most often won’t have the same protections or privileges as employee unions.

How Working With an Attorney Can Help

When it comes to misclassification of independent contractors versus employees at work, there are several types of law to consider. Contract law, tax law, and employment law may all impact the situation and each case has its own nuances to consider. As an employer, you may benefit from speaking with an employment law attorney. They can define the federal and state laws regarding what you need to know to ensure compliance.

If you think your employer misclassified you or you’re unsure of your status and its consequences, speaking with an attorney can help you clear the issue up. They can help you go over your options for reclaiming lost compensation, figure out your status, and help represent you if you go to trial for violating contract terms as an independent contractor.

Frequently Asked Questions on Independent Contractors

Here are some of the most frequently asked questions on the topic: 

Q: Is it more beneficial to be an employee or an independent contractor? 

This depends on your business goals. If you prefer to be part of a team, to collaborate with others, and to have less responsibility in making operational decisions at work, employment is the better fit for you. If you want to have a brand, set your own hours, and work without someone overseeing your operations, an independent contractor position may work better.

Q: What taxes do I pay as a 1099 employee?

If you’re earning 1099 income, you’ll owe self-employment taxes (such as Medicare and Social Security) on that income. Both employment wages and self-employment income will be considered until your maximum annual taxable amount is reached.

Q: Do contractors make more money than employees?

An important factor to consider is how much you’ll earn as a contractor versus your earning capacity as an employee. Independent contractors tend to earn a bit more than employees, but it comes at a cost. Employees often get benefits, paid vacations, and other perks, while contractors must figure out their own benefits. If you work with a staffing agency, however, you may receive insurance and other advantages as a contractor.

Need Help With Wage Disputes in Arizona?

You deserve fair treatment at work, and that includes full compensation for the time you put in. An employer cutting corners by docking your pay in this way is both morally questionable and likely illegal. By working with an employment law attorney in Arizona, you may be able to secure wages that your employer denied you. They may also be able to help you avoid paying more Medicare and Social Security taxes than you should’ve been responsible for.

Call our Employment Law team at (480) 464-1111 to discuss your case today.

Contact Our Employment Law Team

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