The Internal Revenue Service and state regulators scrutinize the distinction between employees and independent contractors because many business owners try to categorize as many of their workers as possible as independent contractors rather than as employees. In addition, businesses do not have to pay federal payroll taxes on amounts paid to independent contractors. The Difference Between Employees and Independent Contractors Independent contractors are individuals who contract with a business to perform a specific project or set of projects on an independent basis.
Employees provide work in an ongoing, structured basis.
The IRS, workers' compensation boards, unemployment compensation boards, federal agencies, and even courts all have slightly different definitions of what an independent contractor is, though their means of categorizing workers as independent contractors are similar. One of the most prevalent approaches used to categorize a worker as either an employee or independent contractor is the analysis created by the IRS . The key issue is how much control the employer has over the worker and the way in which the worker performs his or her job. The more specific the instructions and the more control exercised, the more likely the worker will be considered an employee. What training the employer gives the worker.