Who is an employee?
An employee is a worker hired by an employer to do a specific job. Employers control how employees are paid, when employees work, and how employees work. An employee is on a company’s payroll and receives wages and benefits in exchange for services they are providing for the employer.
Who is an independent contractor?
An independent contractor is a self-employed worker who operates independently on a contract basis. Their contract relationships can be short- or long-term. A contractor can work for an organization but is not technically on their payroll. They can also do work for multiple organizations at one time. An independent contractor is an independent worker who has autonomy and flexibility but does not receive benefits such as bonuses and paid leave.
Distinguishing between employees and independent contractors
The following factors shall be considered in determining whether a person is an “employee” or an “independent contractor” under Article 17 of The Income Tax Law 2009 and Public Ruling 1385-5 Employee vs Independent Contractor. For this purpose, the “principal” shall be the person for whom services are performed.
- Independent contractor can choose how, where and when their work is done, subject to reasonable direction by you while for an employee the principle has the legal right to control how, where and when the worker does their work.
- Independent contractors are not an important part of the organizational structure while employees are.
- Independent contractors use their own space, tools, and equipment while for employees the principle provides space, and all or most of the tools and equipment needed to render the service.
- Independent contractors bear the financial risk of operations; employees don’t.
- Independent contractors provide their own administrative support; employees don’t.
- Independent contractors don’t receive benefits such as paid vacation and sick leave; employees do.
- Independent contractors get paid only if they produce results; usually employees get paid regardless of results.
- Independent contractors don’t receive the majority of their income from a single source; employees do.
If you want to learn more about distinguishing between employees and independent contractors, please click here to read the Public Ruling 1385/5 which is issued by Ministry of Finance. Page 12 of this public ruling includes a table with some indicators to help you better distinguish between an employee and an independent contractor.
In case you want to know more about how wage withholding tax and contractor withholding tax should be calculated and when is the due date for paying these withholding taxes as per the Afghanistan tax law, please click here and go to section 2 Withholding Taxes.