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There is difficulty in determining whether someone is an employee or not. Due to this challenging task, a multi-factor test is a method that the courts utilize to determine whether a person is either an employee or an independent contractor. For example, someone who is not an employee is known as an independent contractor and here the laws relating to employment law would not be applicable to an independent contractor. Some of the important legislations that are related to an employee and not an independent contractor are Employment Rights Act (ERA) 1996, which is an important statute that deals with unfair dismissal , redundancy, notice rights , protection of wages and the Trade Union and Labor Relations Act 1992, the Employment Relations act 1999 and 2004 concerns the law governing trade unions, their relations with their members and employers , industrial action and collective bargaining.
Section 230(1) Employment Rights Act 1996 (ERA 1996) defines an employee as “an individual who has entered into or works under contract of employment”. Whereas a contract of employment means a contract of service or apprenticeship whether express or implied and if express whether it is oral or in writing. Therefore, we can say that an employee is someone engaged under the contract of service.
One of the positive issues that are associated with being an independent contractor is that you get to set your working hours. One negative issue with being an independent contractor is that you do not get employment benefits from the employer. One positive issue associated with being an employee is that one gets employment benefits like disability and health insurance. On the other hand, a negative issue with being an employee is that one works as directed by the employee and under the hours set by the employee. There are some other significant negatives to working as an independent contractor, especially when it comes to financial stability and a lack of benefits. Being independent also means you do not get a regular paycheck.
Some common risks associated with independent contractors and some strategies to mitigate the risks: In fact, there is no standard way to determine whether a worker is an employee or an independent contractor. As a result, there is a common misclassification of the workers. One of the risks is that as an independent contractor, you face being audited by the government. Government carries a lot of audits on independent contractors since they want to see as many people listed as workers because the more employees are classified as workers, the more insurance money and tax the government gets (Fishman, 2016).
The differences between an employee and an independent contractor often deals with taxes, benefits, and employer control. An employee’s wages will have taxes withheld by their employer while an independent contractor does not have taxes withheld. Employees also are offered benefits by their employers, such as health insurance to name one. Independent contractors are not offered benefits. Finally, employees are limited to what and how their employer wants a job done, while independent contractors have the freedom to work as they please.
One positive area for an employee and negative for an independent contractor is job stability along with benefits. As mentioned before, employees have the stability of a regular paycheck and the security of benefits, independent contractors do not. An independent contractor however has more freedom to operate as they please where employees do not have such freedom. These are just a few pros and cons of being an employee or an independent contractor.
Independent contractors are faced with may risks. I feel the biggest risk faced is they are not protected by labor laws. Employees are protected against discrimination, but independent contractors are not protected by law. The other significant risk is not being paid for work they have completed.