There are quite a few legal distinctions. Essentially, a W-2 Employee is someone whose work is directly integral to their employer’s business. An Independent Contractor is more like an independent company hired for separate, outsourced, or project-based work.
Here is a chart to help highlight their distinctions:
| Category | W-2 Employee | Independent Contractor |
| Control | The employer controls how, when, and where they work | The contractor controls their work process, schedule, and location. |
| Integration | Work is directly integral to the employer’s business. | The contractor works on separate, outsourced, or project-based work. And often for multiple clients. |
| Payment | The employer pays them either hourly or on a salary. | The contractor’s pay is determined in a contract. Can be by the hour or per project. |
| Benefits | The employer must pay benefits. | The contractor is not eligible for employee benefits. They have to handle that independently. |
| Equipment/Expenses | The employer provides the tools and resources so the employee can fulfill their work. | The contractor covers their own equipment and operating expenses. |
| Tax Responsibility | Employer withholds and remits payroll taxes | The Contractor pays self-employment taxes directly. |
Worker Protection Under Virginia’s Worker Misclassification Law (Va. Code §40.1‑28.7:7)
This law presumes any person paid for services is an employee unless the employer can demonstrate that they are an independent contractor. Essentially, it’s a matter of contract. So make sure you and your independent contractors have your relationship in clear writing.
What happens if you misclassify an independent contractor or W-2 employee?
Firstly, misclassified workers can sue for damages like lost wages and benefits. State agencies like the Attorney General’s Worker Protection Unit can impose civil penalties on you. These can range from $1,000 to $5,000 per instance. They may even bar employers from public contracts for up to two years.
How can you avoid misclassification?
You can avoid misclassification by following the IRS guidelines, using clearly written contracts, and maintaining documentation. And we can help with all of that and more! So protect yourself from liability and hefty penalties.
