Employee Classifications: Employee vs Contractor vs Intern

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July 31, 2018
HR

Whether you’re looking for a job, or you run a business and you’re hiring, it’s essential to understand the difference between employees, contractors and interns. Understanding employee classifications can help business owners to streamline their staffing structure and ensure that they operate above board at all times.

What is the difference between employees, contractors and interns?

There are various different types of employees. If you manage a company, it’s wise to be able to differentiate between the classifications in order to regulate the flexibility of the workforce and ensure everyone is treated properly. On the other side, it’s beneficial for those looking for employment or work to understand the different employee classifications to ensure they have access to the benefits or payments that are owed to them.

Employees

An employee is an individual who is hired to fulfill a specific role. In the majority of cases, employees have set job descriptions, and they agree to carry out the required jobs in exchange for a weekly, monthly or annual income. Employees can be full or part-time, and they can work on short-term or long-term contracts.

Employees often have access to benefits that may not be available to contractors and interns, for example, paid sick leave, overtime and annual leave. Payment guidelines are determined by the Fair Labor Standards Act. According to IRS guidelines, employers should withhold Income Tax, Social Security and Medicare taxes. If you employ others, you have a duty to determine whether that person is an employee or an independent contractor. Your decision is likely to be based on the level of control you have over the worker’s behavior, how or when they do their job and how they are paid. The kind of relationship you have them will also play a part. Some employers offer their employees benefits such as insurance or a pension plan, for example. This would not be a feature of a relationship between an employer and a contractor.

Contractors

A contractor is an independent worker. A company may hire both employees and contractors, but there are important differences when it comes to legal definitions, even when both individuals are doing the same job.

Employees have access to benefits, and the company withholds tax from their wages. Employers do not withhold tax from contractors, and they are not governed by labor or employment regulations. Agreements between employers and contractors are drawn up based on input from both parties. Contractors are often hired for individual and short-term projects, although some companies do work with contractors on a long-term basis. Contractors have a lot more control over when, where, and how they work.

Interns

Many people use internships to gain experience and get a foot in the door when they have career goals in mind. There are many differences between interns and employees. Employees are hired to do a job, while internships are designed to provide on the job training. According to the Department of Labor, ‘for-profit’ companies must offer employees a minimum wage and paid overtime. To determine whether a worker is an employee or an intern, the DOL has put together a test for employers. This focuses on key factors that relate to the nature of the role, the value of the position to the intern and the company and the extent to which the placement benefits the intern in terms of their academic study or training. Interns should not be used to replace or displace employees. If an intern is found to be doing the work of an employee under conditions that would usually be indicative of employment or there is limited benefit to the intern in terms of career progression, the intern may be deemed an employee. In this case, the employee would be entitled to paid overtime and access to the minimum wage. An internship should always benefit the intern. Internships can be incredibly valuable, as they often lead to employment offers.

Whether you’re an employer or you’re looking for work, it’s beneficial to understand the difference between employees, interns, and contractors.

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