In recent years, there has been a surge in the number of people working from home. Thanks to the internet and advances in technology, it’s now possible to work remotely without having to commute to an office every day. But what does remote work mean for workers? Are they considered employees or contractors? And what are the legal implications of each classification? Let’s take a closer look.
How to Define Remote Work, Working From Home, and Contract Work
The line between remote work, work from home, and contract work can be a bit blurry, but there are some key differences that you should be aware of. First, let’s define each term.
Remote work & work from home
Gartner defines remote work as follows: “Remote work (also known as work from home [WFH] or telecommuting) is a type of flexible working arrangement that allows an employee to work from a remote location outside of corporate offices.”
Remote work is typically done by an employee of a company who is not physically present in the office. In other words, they are working from home and engaging in flexible work. This type of work is increasingly popular. McKinsey reports that, “Eighty-seven percent of workers offered at least some remote work embrace the opportunity and spend an average of three days a week working from home.”
As an employee, you are an individual who works for a company in exchange for a salary and benefits. You are classified as an employee if you work full-time, part-time, or even on a temporary basis. When you work remotely, you are still considered an employee of the company. The main difference is that you are not required to be physically present in the office; you can work from anywhere in the world, as long as you have a reliable internet connection.
Contract work, on the other hand, is typically done by an independent contractor who is not employed by the company they are working for. They are usually paid per project or task, can work when and where they choose, and do not receive any benefits (or they didn’t until platforms like GreenLight made is easy and affordable for companies to offer benefits to contractors).
Contract workers are not considered employees of the company, which means you don’t receive benefits such as health insurance or paid time off. You are also responsible for your own taxes. As a contractor, you may be working remotely, but you are not considered a remote worker; instead, you are considered an independent contractor.
The Difference Between Remote Work and Contract Work
There’s a big difference between remote work and contract work, even though both can involve working from home. Remote work typically means that you are an employee of a company and you telecommute, or work from home, instead of going into the office every day. Contract work, on the other hand, is when you are self-employed and you work with multiple clients on a per-project basis.
In order to determine if a worker can qualify as an independent contractor and not as an employee performing remote work, ask these three questions (based off the ABC test):
- How much instruction and oversight do you give to this worker on how they complete tasks? If you have this type of control over them, then they are likely considered employees instead of independent contractors.
- Is your usual business at risk if this worker doesn’t produce what is expected of him/her? If your business cannot deliver the service or product you provide without this worker, then they are likely considered an employee instead of an independent contractor.
- Does this worker have an independent business operation and a number of potential customers? If this worker relies solely on you as an employer, then they are likely considered an employee instead of an independent contractor.
So, which one is better? That depends on your situation and what you’re looking for.
The Legal Implications of Working From Home/Working Remotely vs. Being a Contractor
There are also different legal implications to consider when deciding between remote work and contract work. For example, as an employee who works remotely, you are still covered (in general) by your employer’s workers’ compensation insurance in the event that you get injured while working. However, if you are a contractor who works from home, you are not usually covered by workers’ compensation insurance since you are self-employed.
Another legal implication to consider is taxes. If you are an employee who works remotely, your employer will withhold taxes from your paycheck just as they would if you were working in the office. However, if you are a contractor who works from home, you will be responsible for paying your own taxes since you are self-employed.
Whether you’re an employee or contractor, working remotely has become increasingly popular in recent years. And while there is some overlap between the two arrangements, there are also some key differences. As an employee who works remotely or works from home, you’re still considered part of the company even though you’re not physically present in the office; as a contractor, you’re self-employed and provide services to clients on a project basis. So if you’re wondering whether working from home or working remotely means the same thing as being a contractor, now you know the answer.
If you’re an employer who wants to mitigate classification risk altogether, consider scheduling a demo of GreenLight and see how we can help you manage and pay your workforce.