Who is Eligible for Benefits

Independent Contractor or Employee

The first step in determining whether an employee is entitled to company benefits is to resolve the hiring status of a new recruit. In other words, is the worker actually a company employee or merely an independent contractor?  This distinction is important because employees will be entitled to participate in the company's benefits programs, while independent contractors would not be.

From the employer's perspective, in addition to benefits, the employer must generally withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. In contrast, an employer does not generally have to withhold or pay any taxes on payments to independent contractors.

For Additional Information:

• Tax Topic 762 Basic Information - To determine whether a worker is an independent contractor or an employee, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories Behavioral Control, Financial Control, and the Type of Relationship itself.
• Publication 1976, Section 530 Employment Tax Relief Requirements (PDF) - Section 530 provides businesses with relief from Federal employment tax obligations if certain requirements are met.
• Form SS-8 (PDF) - Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
• Employment Taxes and Classifying Workers. [FS-2007-27]
• Employee - Independent Contractor FAQs.