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Why should you know your employee classification?

On Behalf of | Jan 24, 2024 | Employment Law |

Understanding your employment classification is a fundamental aspect of your working life that affects far more than just your job title. It carries substantial implications for your career, finances and personal life. Knowing the distinction between an independent contractor and a full-time employee is vital for several reasons that touch on every aspect of your professional journey.

The difference between a contractor vs. a full-time employee

As an independent contractor, you enjoy a significant level of freedom in your work. You typically have the flexibility to set your own schedule and choose how you finish projects. You are your own boss in many respects, from negotiating payment terms to managing your tax obligations. Remember, when you work as a contractor, you take responsibility for managing your own taxes. Also, you do not receive the benefits given to full-time employees, such as paid time off or health insurance.

If you are a full-time employee, your relationship with the company is more structured. Your employer dictates your work hours, provides necessary training and may require that you focus solely on their business during your working hours. In exchange for this level of control, you receive benefits like health insurance, paid time off and eligibility for unemployment insurance. Your employer also takes care of withholding taxes from your paycheck.

The “ABC test”

New Jersey employment law uses the “ABC test” to determine your classification. To legally be an independent contractor, the following must all be true:

  1. You are free from control or direction over the performance of your service, both under your contract and in practice.
  2. The service you provide to a business is not something the business usually does, or you are doing your work somewhere other than the business’s usual places of work.
  3. You run your own business, trade or work in a profession where you offer your services to the public on your own.

If your work situation does not satisfy these conditions, you are likely a full-time employee. Therefore, you should be receiving the corresponding benefits and protections.

Misclassification can have profound implications for you as a worker. If your employer wrongly classified you as an independent contractor, you may be missing out on crucial benefits and protections like overtime pay, workers’ compensation and unemployment insurance. You have the right to seek clarification and, if necessary, pursue the benefits due to you.