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The Difference between Employees versus Contractors: What Business Owners Need to Know

When hiring staff to run a business, owners and managers can choose to take on their new hires as either employees or contract workers. Understanding the difference between these two types of staff can be crucial in appropriately classifying workers and, in turn, avoiding potentially costly disputes in the future.

What is an ‘Employee’?

types of employees

In general, workers who are employees will be those who:

  • Carry out labor or tasks that are controlled by others
  • Are trained to carry out the labor associated with a specific position
  • Are employed by only one employer.

According to the U.S. Department of Labor (DOL), which released guidelines for determining whether workers are employees versus independent contractors earlier this year, “most workers are employees under the FLSA [Fair Labor Standards Act].”

What is an ‘Independent Contractor’?

In contrast, workers who are generally considered to be independent contractors will be those who:

  • Have their own employees
  • Operate under a business name or entity and/or advertise their professional services
  • Have a business bank account
  • Work for multiple parties (or clients)
  • Set their own hours and have their own tools
  • Maintain their own business records.

Why the Right Classification Matters: Limiting Business Liability

While businesses of any size can benefit from staffing a mix of employees and independent contractors, appropriately classifying each staff member, based on the nature of his labor (and the factors noted above), is essential.

This is because, when businesses misclassify workers – hiring them on as independent contractors instead of employees, they can be sued by the misclassified workers.

And when these lawsuits result in wins for the misclassified workers, businesses can be ordered to compensate workers for their:

  • Back pay, such as past overtime wages they never received
  • Back benefits, such as health care and retirement benefits
  • Attorneys’ fees
  • Other damages (if incurred as a result of the misclassification).

Punitive damages may also be awarded in some worker misclassification cases.

Contact a Denver Business Attorney at Downey & Associates, PC

For experienced help resolving any business legal issue, contact Denver Business Attorney Thomas E. Downey. Since 1983, Thomas Downey and the other legal professionals at Downey & Associates, PC, have been providing individuals and businesses in the Denver Metro Area and throughout the U.S. with the highest level of legal service for their business, litigation, property tax and real estate legal issues.

To find out more about our services and how we can assist you, contact our firm today by calling us at (303) 813-1111 or by emailing us using the contact form on this page.

From our law offices in Centennial, we serve clients throughout Colorado and the U.S.

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