employer-employee relationship
Definition
An employer-employee relationship exists when your business has enough control over a worker that the law considers that person your employee rather than an independent contractor. The key factor is control, meaning you direct not just what work gets done but also how and when the worker does it. This classification triggers specific legal obligations on your part, including payroll taxes, workers' compensation insurance, and compliance with wage and hour laws.
Example
If you hire a graphic designer who works set hours in your office, uses your equipment, and follows your detailed instructions, the IRS will likely treat that person as your employee even if you both signed a contract calling them a contractor.
Watch Out
Misclassifying an employee as an independent contractor can result in significant back taxes, penalties, and lawsuits, so when in doubt, consult an employment attorney before deciding how to classify a worker.
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This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.