Before you can pay anyone correctly you need to know what kind of worker they are. Employees and independent contractors are treated differently for tax, benefits, legal protections and paperwork, and the label you put on the relationship does not decide the matter. Authorities look at how the work actually happens. This lesson introduces the distinction in general terms so you can see where your own arrangements fall.
What generally marks an employee
Employees typically work under the direction of the business: it sets their hours, tells them how to do the work, provides the tools, pays them a wage or salary on a schedule, and expects ongoing service. The business usually withholds tax from their pay, contributes to social or employment programs and may owe them leave, minimum pay and other protections.
What generally marks a contractor
Contractors typically run their own business: they control how and when the work is done, use their own tools, serve other clients, invoice for defined deliverables, bear some financial risk and can usually substitute someone else. The business pays the invoice without withholding, and the contractor handles their own tax.
Why the tests differ
Each country, and often each state or agency within it, applies its own test, and the same person can be a contractor under one test and an employee under another. The factors above are indicative, not decisive, which is why a professional opinion matters for anything borderline.
Action Step
List every person you currently pay or plan to pay. For each, note how you treat them today and tick which of the employee and contractor markers above apply. Highlight anyone with ticks in both columns.
This lesson is educational and is not financial, tax, legal or insurance advice. Rules vary by jurisdiction; confirm your obligations with a qualified professional.