- Posted by DasBrooks
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- Comments Off on Do I Need an Employee or an Independent Contractor?
And what’s the difference?
A worker’s status determines what taxes are paid and by whom. An independent contractor is self-employed and I responsible for paying his or her on taxes (Note to self, reserve a portion of paycheck for paying taxes!). A business issues a 1099 to their independent contractors at the end of the year, and is not responsible for withholding income tax or FICA.
An employee is issued a W2 at the end of the year and the business he or he works for withholds income tax, FICA, unemployment insurance, and state taxes. Employees are also generally eligible for benefits offered by the employer, where a independent contractor is not.
So how do you know?
1. Behavioral control: Employees are generally under more supervision or control of the employer. They may have specific steps to perform a task, or a certain manner in which to work. Independent contractors generally have say over how they perform a task, and sometimes where.
2. Financial Control: Independent contractors are more likely to incur unreimbursed expenses, and to have other costs, such as a home office. However, independent contractors are also free to offer their services to other businesses or clients. They may be paid by flat fee or percentage, where employees are generally guaranteed a certain salary.
3. Length of relationship: Employees generally enter into a relationship expecting open-ended employment; independent contractors usually have a length of service before the contract is renegotiated.
—Misty, for Das-Brooks