There are currently more than 57 million independent contract workers in the United States. And, now more than ever, small businesses are turning to freelancers to supplement traditional employees and support one-time growth or projects.

When working with an independent contractor or freelancer, there are key differences from employees to consider. This includes your legal and tax obligations, as well as the risks, benefits and how they fit into your business culture and goals.

Definitions: Employee or Contractor?

In the simplest of definitions, an employee is someone your business is responsible for. An independent contractor is responsible for themselves.

“When deciding whether you can safely treat a worker as an independent contractor,” says Susan Arnold, Owner and Lead Consultant of HR On-Call, LLC, “there are two separate tests that you should consider—the Common Law Test and the Reasonable Basis Test.”

The Common Law Test, “measures how much control you have over the worker,” Arnold says. A simple questionnaire (IRS form SS-8) can help you determine whether a worker is your employee or not. It takes into account the behavioral and financial control you have over the worker, as well as relationship factors like contracts, benefits, permanency of the relationship and if the work is core to your business.

The Reasonable Basis test uses instruction, training and financial investment as a basis for determining whether a worker is an employee or contractor. When it comes to instruction, “if you require them to follow instructions on when, where, and how work is to be done,” Arnold says, “the worker is probably an employee.”

Similarly, you should ask if you are providing job training. If you provide or arrange any kind of training of any kind to the worker, it is likely they should be considered an employee.

Finally, you should evaluate the worker’s ability to make a profit or suffer a loss. “In other words, an employee will always get paid. An independent contractor, however, has a financial stake in their enterprise,” Arnold says.

Why does it matter?

First of all, employees and contractors are treated differently by employment law and the IRS. You have to pay payroll taxes and ensure the proper taxes are withheld from employees’ paychecks, while independent contractors are responsible for their own taxes. In addition, employees are entitled to certain rights under federal and state labor laws, while contractors have less protection. (Although, recent legislation is challenging that.)

In addition to legal and tax differences, you should also be prepared to manage the contractor relationship slightly differently than employees. Unlike an employee, a contractor is likely working on a shorter-term project and has a specific area of expertise. Even if they are working long term, you should have a thorough scope of work with timelines, deliverables and terms.

Once you have set those expectations, you will usually be more hands-off with freelancers. After all, you are paying them as the expert. Unlike employees, independent contractors expect a certain degree of autonomy with regards to how and when they get their work done. Flexibility is a primary benefit of independent work, after all. As long as they are meeting targets, avoid micromanaging and instead stand back and let them get the job done their way.

If you are bringing in a contractor to work with or as part of a team with employees, you should consider how differences in motivation, perceived purpose and recognition can create tensions if not properly managed. Align teams around goals and set explicit rules around responsibilities, decision making and information. Finally, avoid an “us and them” atmosphere by including contractors in team social activities and celebrations. And make sure on-site contractors have access to amenities like cafeterias and parking.

Both independent contractors and traditional employees can serve important roles in your business. Knowing which type of worker meets your needs—and knowing the difference between how you treat them—will ensure you are ready to fill positions more effectively.