---
title: What is the Difference Between a Subcontractor and Employee in NH?
description: What's the difference between a subcontractor and an employee in NH?  The HPM Insurance blog helps employers understand why it's critical to understand.
image: https://hpminsurance.com/hubfs/subcontractor.jpeg
---

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## [What is the Difference Between a Subcontractor and Employee in NH?](https://hpminsurance.com/blog/entryid/9328/difference-between-a-subcontractor-and-employee-in-nh)

 Written by [April Weismann](https://hpminsurance.com/blog/author/april-weismann) on 02/13/2023 06:26 PM in [Workers Compensation Insurance](https://hpminsurance.com/blog/topic/workers-compensation-insurance),. [Commercial Insurance](https://hpminsurance.com/blog/topic/commercial-insurance).

You may assume that because a worker is not on your payroll, they would not be considered employees, according to the Department of Labor (DOL), but think again.  The DOL differentiates between two types of hired workers: employees and subcontractors (independent contractors), and considers at least seven criteria to determine such. 

This distinction can significantly impact following mandated worker's compensation regulations and what can happen if you don't as a business. Below are the reasons and what you can do to avoid being fined. 

![subcontractor or employee?](https://hpminsurance.com/hs-fs/hubfs/subcontractor.jpeg?width=638&height=425&name=subcontractor.jpeg)

# What is the Difference between a Subcontractor and an Employee?

Generally, the difference between an employee and a subcontractor comes down to control and compensation. Subcontractors typically supply some or all of their own materials and tools and can choose what work they will agree to complete. They also do not usually receive a regular paycheck from the employer but are paid an agreed-upon amount for specific work.  

A subcontractor's work is often temporary and left up to them when completed, as long as it is finished within an agreed time. Independent contractors are not eligible for life and health insurance benefits and are not typically central to the overall business operation.

## How Does the NH Department of Labor Distinguish Between an Employee and a Subcontractor?

In New Hampshire, the boundaries between the two roles are [spelled out](http://www.nh.gov/labor/documents/employee-contractor-poster.pdf) by the Department of Labor to eliminate confusion. Per the Department of Labor, a worker is considered an employee unless they meet **all** the following criteria:

**1. The person possesses or has applied for a federal employer identification number or social security number, or in the alternative, has agreed in writing to carry out the responsibilities imposed on employers under this chapter.****  
**  
Translation: Acting as an employer, subcontractors must agree to the responsibilities of an employer, including paying the employer portion of the federal taxes from their identification or social security number.

 **2. The person has control and discretion over the means and manner of performance of the work, in that the result of the work, rather than the means or manner by which the work is performed, is the primary element bargained for by the employer.*** *

Translation: Subcontractors agree to complete a certain task for the employer but maintain control over how that work gets done.

**3. The person has control over the time when the work is performed, and the time of performance is not dictated by the employer.  However, this shall not prohibit the employer from reaching an agreement with the person as to completion schedule, range of work hours, and maximum number of work hours to be provided by the person, and in the case of entertainment, the time such entertainment is to be presented.**

Translation: Employees are typically required to work set hours for the employer. Subcontractors have the right to perform the work whenever they choose, so long as it stays within the bounds of their agreement with the employer. Contractors who provide entertainment can be held to a set time for a performance.

 **4. The person hires and pays the person’s assistants, if any, and to the extent such assistants are employees, supervises the details of the assistants’ work. **

Translation: A subcontractor hires and supervises his own assistants and pays for them himself. An employee would have assistants hired and under the direction of the employer.

 **5. The person holds him or herself out to be in business for him or herself or is registered with the state as a business and the person has continuing or recurring business liabilities or obligations.*** *

Translation: A subcontractor works for themself, running their own business. They must register with the state and has the same responsibilities as other businesses.

 **6. The person is responsible for satisfactory completion of work and may be held contractually responsible for failure to complete the work.**

Translation: Subcontractors are bound by a contract to the employer to complete the work to the satisfaction of the employer.  If the work is not completed, the employer can take legal action.

**7. The person is not required to work exclusively for the employer.**

Translation: The subcontractor can provide services to whomever they choose and is not obligated to stay with one employer.

Again, the worker should still be considered a subcontractor if all these conditions are met.  That said, employers may still need to carry workers' compensation insurance on the subcontractor if they do not provide their own. Given these guidelines, employers and workers can determine the proper work classification to arrive at a mutually agreeable employment situation.

## What if I Disagree with the Classification of a Worker?

If you have a [worker's compensation](https://hpminsurance.com/workers-compensation-insurance-new-hampshire) policy in place, the insurance company could call into question the classification of a worker at audit time.  If there has been a work-related injury and the classification of a worker is in question, both the insurance company and the state will get involved.  You have every right to provide evidence to each party justifying your position; however, if the worker does not meet all the above criteria, you will likely have a difficult case.

## Why Would I Need NH Worker's Compensation Insurance If I Don't Have Any Employees?

This is a tricky question as your opinion may differ from the state.  The safest action is to buy a worker's compensation policy with no employees.  This can cover the situation if you bring in a questionable sub or a worker to do a temporary project.  If such a person were injured, you would at least have a policy in place and not likely be subject to the fines and penalties you would otherwise face if found not carrying workers' compensation.

## What if I Decide Not to Carry Worker's Compensation?

As worker's comp is required by law, you could be breaking the law and subject to a fine and daily penalty for every day you go without it.  This could easily bankrupt a business.  This law applies to full-time, part-time, volunteers, and family members who work for you. 

Self-employed, sole-proprietors or partners are not always required to carry worker's compensation on themselves, though they can elect to.  However, once there is a 4th [executive officer or LLC member, a worker's compensation policy must be in place](https://hpminsurance.com/blog/entryid/11799/is-excluding-officers-and-owners-from-workers-compensation-insurance-coverage-a-bad-idea), or penalties will apply.

## What if I Have a Worker's Compensation Policy but Mis-classify an Employee?

The insurance company audits worker's compensation policies at the end of the policy term, given that it is rated initially on estimated payroll.  Businesses must comply with the audit and provide the necessary financials to ensure that employees and subcontractors are classified correctly.  If there were an oversight, it would most likely be caught during the audit and corrected.  The bad news is that you will have to pay the premium owed, so getting it right the first time is typically better.

## Get Professional Advice:

Even for an experienced insurance professional, there are shades of gray in classifying the employee/subcontractor relationship.  Given the severity of the consequences, it is critical that you get advice from an insurance agent before someone works for you, either as an employee or subcontractor.  There is too much on the line to guess.

### Possibly related posts:

- [How Do I Insure An Investment Property?](https://hpminsurance.com/blog/how-do-i-insure-an-investment-property)
- [Why Medium-Sized Businesses Need Business Interruption Insurance](https://hpminsurance.com/blog/why-medium-sized-businesses-need-business-interruption-insurance)
- [Top Tips to Prepare for a Nor'Easter](https://hpminsurance.com/blog/top-tips-to-prepare-for-a-blizzard-noreaster)
- [What Does Pay-As-You-Go Mean for Workers Comp Insurance?](https://hpminsurance.com/blog/what-does-pay-as-you-go-mean-for-workers-comp-insurance)

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