Reply 1 Odella: The difference between an employee and an independent contractor, is how the employer pays them and how their taxes are paid. An employee is paid by the hour, salary, commission or combination of both. An employee also could get overtime. An employee receive a W-2 form, which shows their yearly income. The reason that they receive a W-2, because their employer withhold federal and state income taxes and FICA taxes, which is social security and medicare. An independent contractor is provided a 1099, the employer that they do work for does not withheld their federal, state and FICA taxes from the amount the company pay's them. An independent contractor is liable for their own income taxes, which is called self-employment. However, an independent contractor works without the legal amenities that will protect them, but an employee does. For example, wage and hour laws, workers compensation and unemployment benefits. There have been several cases, that have led to companies being penalized, by the mis-classification of their employees. When an employer mis-classify an employee, they would label he/she as an independent contractor; because this will disable the company in paying taxes on employees. Such as unemployment taxes, unemployment insurance and workers compensation. When companies mis-classify their employees, will cause an effect on the state and federal government. That is short changing them on their tax revenue by millions of dollars. With mis-classifying employees, this will be a legal and ethical issue. For instance, the reason why companies will mis-classify an employee and an independent contractor is, to save on labor costs. Labor costs is a major portion of the company. overhead. Mis-classifying workers has a big negative result at the end, for the company. For example, when a company intentionally classify employees as independent contractors; it becomes unethical. This is a fraudulent act toward the state and federal governments. As a result, the state and federal have taken action to penalize companies, who have been mis-classifying their employees. The IRS have implemented some test in reference to decipher an employee from an independent contractor. The test consist of behavioral control, financial control and type of responsibility. Fines are generated from the U.S. Department of Labor (DOL), IRS and other state agencies. Some of the fines that companies are responsible for is, back pay on taxes, interest on employees' wages and FICA taxes that were not withheld. Failure to make payments to the government, can produce additional fines. Reference Post, J. (2018, September 20). Worker Classification: What You Need to Know about Employee vs. Contractor. Retrieved from https://www.businessnewsdaily.com/770-contract-vs-employees-what-you-need-to-know.html. Reply 2 Zach: To safeguard against misclassification of workers, the IRS has compiled a list of 20 factors to help individuals and employers understand th ...