The Great Debate – Employee vs Independent Contractor

The Great Debate – Employee vs Independent Contractor

The Great Debate – Employee vs Independent Contractor

In order to avoid costly and legal consequences I thought I would take a minute to write about the differences between employees and independent contractors. For starters make things clear between you (employer) and the person you are working with (employee VS independent contractor).

Employee VS Independent Contractor

The following three considerations are used to determine employee or independent status.

Behavioral  – Does the business train the worker, give the worker specific instructions on how the work is to be performed and when?

Financial – Does the business have the right to control the worker? Are all business related expenses reimbursed? Is the worker given supplies and equipment? How is the worker paid?

Type of relationship – Are benefits provided? Is there a written contract?

If questions arise and you are still unclear about the status of a worker consult a professional, better safe than sorry. When a worker is misclassified unintentionally you run the risk of being responsible for the employers portion of the payroll taxes, unemployment taxes, interest and penalties. When intentionally misclassified the employer would be responsible for the employer and employee portion of the payroll taxes, income tax that should have been withheld, interest, penalties, back taxes and criminal and civil penalties.

When labeling a worker as an employee you will have them complete and I-9 Employment Eligibility Verification form and a W-4 Employee’s Withholding Allowance Certificate. You will collect payroll taxes out of each check and you will be responsible for paying those taxes to the Internal Revenue Service on a regular basis and filing the necessary payroll tax returns on a quarterly basis.

When using an Independent Contractor you will have them fill out a W9 Request for a Taxpayer Identification Number and Certification. You will not collect payroll taxes. You will be responsible for reporting what you have paid them by filing a 1096 Informational Return and 1099 Miscellaneous Income Return in January for the prior year.

Whatever your decision be clear, make sure your worker understands how they will be classified and what they are responsible for, this will save you time, money and confusion in the long run.  Please Schedule a meeting to learn more!

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