Gig Economy 101: Employment vs. Contract Work
The gig economy has made contract work more prevalent, making it more important to understand the differences between contract work and employment.
Worker classification can be tricky, but it’s vital to know how to classify your workers. By its typical definition, an independent contractor generally performs work for a client without being employed by that client. However, the definition for independent contractors has been tested and broadened by major gig work platforms, making independent contractors a viable resource for most companies. To properly classify workers and navigate the new workforce, you should develop a thorough understanding of the differences between independent contractors and employees.
A set end date
Independent contractors are brought on for specific projects or durations of time and have a set end date. The end date can be shortened or extended as the project demands, but it does exist. In contrast, W-2 employees work for a company for an indefinite period of time.
Use of company resources
Independent contractors are expected to have their own tools for the work they are doing. The company is not required to provide tools to independent contractors. Conversely, a company must provide all necessary tools to employees and ensure their employees have access to all available resources.
Employers are legally required to give employees family and medical leave, the minimum health benefits required by law, and must cover Social Security taxes. Independent contractors do not receive any benefits from their clients. Any costs incurred by the contractor must be covered by the contractor. This doesn’t mean that independent contractors are completely without protection; as more of the workforce becomes independent, the social safety net protecting workers will need to expand and adapt.
Another primary difference between traditional employment and contract work is the tax form that each party is required to fill out. If an independent contractor receives payments of $600 or more from any single client, the contractor will receive a 1099 form to file their taxes. An employee instead fills out a W-2 form, which is provided by their employer. Tax withholding only applies to employees and is based on the information the employee filled into their W-4 form.
The changing landscape
At the forefront of litigation surrounding independent contractors is Uber. Since Uber classifies their workers using 1099 forms, anyone who drives using Uber is not employed by Uber. Several lawsuits arguing that Uber drivers were misclassified – and should instead be employees – have lead to the same conclusion that these drivers are considered freelancers. Uber drivers adhere to the rules for independent contractor classification above – they must use their own tools (a personal vehicle and gas), each drive has a set start and end time, and benefits are not provided.
Gig and on-demand work platforms have grown in the past few year, providing more people with the opportunity to work independently. One such platform is tilr – a new way to get workers you need that is made possible by the increasing shift towards independent work. tilr also classifies workers that use its platform independent contractors that are required to file 1099 forms. To utilize this changing landscape and innovate the way you approach staffing, you can learn more here.