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Employee or Independent Contractor?

Updated: May 20

A common question small businesses and nonprofits have is whether they should hire someone as an employee or independent contractor.

Often, small businesses and nonprofits want to classify someone as an independent contractor, but it's not that simple. The law doesn't just look at someone's title, rather, it looks at the nature of the relationship between the employer and the worker. It's important to understand when someone is an employee vs independent contractor as misclassifying a worker can have adverse consequences.

Key indicators of an independent contractor:

  1. You do not tell the worker when, where, or how to conduct its business. The worker generally has their own tools and methods. You only tell them the objectives of the project you've assigned them.

  2. You do not have or exert any financial control over the worker. The worker has a greater opportunity for profit and bears the risk of loss.

  3. The worker has their own established business. None of the worker’s business (i.e., bookkeeping, marketing, administrative tasks) occurs at your place of business.

  4. You have a short-term or limited relationship with the worker. A permanent or long-term relationship can indicate the worker is more akin to an employee.

  5. The worker's services are not integral to your business.

The last indicator is often a cause for concern. Using someone to work on something that is a primary focus of your company could trigger additional scrutiny by both state and federal agencies. If any of those agencies finds you have improperly classified workers as independent contractors, you could be held liable for large payments of back-taxes, penalties, and other fines.

Therefore, in making hiring decisions you should always consider how you would classify your business and whether your worker’s involvement would be an essential part of that definition along with the other indicators of independent contractors.

Helpful Links:

The information provided on my blog is not legal advice and should not be relied on as legal advice. Anyone reviewing this post should use it as only a first step in understanding the differences between an independent contractor and an employee in Washington State. Employers should consult with a lawyer before making any decisions.


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