Employee vs Inde­pen­dent Con­trac­tor Dif­fe­rence and Com­pa­ri­son


If you want the IRS to deter­mi­ne if a spe­ci­fic indi­vi­du­al is an inde­pen­dent con­trac­tor or an employee, file Form SS‑8, Deter­mi­na­ti­on of Worker Sta­tus for Pur­po­ses of Fede­ral Employ­ment Taxes and Inco­me Tax With­hol­ding. For infor­ma­ti­on on eli­gi­bi­li­ty for a vol­un­t­a­ry pro­gram to reclas­si­fy your workers as employees with par­ti­al reli­ef from fede­ral employ­ment taxes, see Vol­un­t­a­ry Clas­si­fi­ca­ti­on Sett­le­ment Pro­gram (VCSP) Fre­quent­ly Asked Ques­ti­ons. For fede­ral employ­ment tax pur­po­ses, the usu­al com­mon law rules are appli­ca­ble to deter­mi­ne if a worker is an inde­pen­dent con­trac­tor or an employee.

Whats the Difference Between an Independent Contractor and an Employee

At one time, the­re were 20 fac­tors pro­vi­ded by the IRS that had to be used in court decis­i­ons to deci­de worker sta­tus. It is often still used as a tool, but many of the fac­tors Whats the Dif­fe­rence Bet­ween an Inde­pen­dent Con­trac­tor and an Employee are not rele­vant today. If you’re still not sure whe­ther someone you are taking on would be clas­si­fied as an inde­pen­dent con­trac­tor vs. employee, then don’t worry.

Inde­pen­dent con­trac­tors get no bene­fits.

There’s a lot to con­sider befo­re you take someone new on in your busi­ness. You need to estab­lish their role and respon­si­bi­li­ties, prepa­re their work sta­ti­on and work out if they will need trai­ning, among­st other things (check out this hiring pro­cess check­list tem­p­la­te for more info on this). He is a natio­nal­ly reco­gni­zed spea­k­er on a varie­ty of tax topics offe­red for con­ti­nuing edu­ca­ti­on for CPAs and finan­cial plan­ners and has aut­ho­red seve­ral publi­ca­ti­ons and artic­les. And an important side note here — make sure you are appro­pria­te­ly inqui­ring of your cli­ents if they are invol­ved in the gig eco­no­my befo­re you prepa­re their returns, per­haps asking if they “occa­sio­nal­ly” dri­ve for Uber or Lyft. If the ans­wer is yes, make sure that receipts and other docu­men­ta­ti­on are available for sup­port. The con­se­quen­ces can be gra­ve when you inten­tio­nal­ly mis­clas­si­fy a worker.

Whats the Difference Between an Independent Contractor and an Employee

A good start­ing place could be to look at if the employ­ment falls under one of the dif­fe­rent types of employ­ment con­tracts. For exam­p­le, is it a full-time employ­ment con­tract or a part-time con­tract? Does the con­tract fall squa­re­ly under an inde­pen­dent con­trac­tor agree­ment? Simi­lar­ly, an employ­ment https://quickbooks-payroll.org/ con­tract must accu­ra­te­ly defi­ne the worker’s job expec­ted to be per­for­med by the employee, and the work is usual­ly a key aspect of the busi­ness. Howe­ver, there’s much more at sta­ke in this rela­ti­onship, pos­si­bly inclu­ding bene­fits, other employee-rela­ted cos­ts, and even a pen­si­on plan.

Inde­pen­dent Con­trac­tor vs. Employee Chart

The IRS uses an 11-fac­tor test based lar­ge­ly on the abili­ty of the com­pa­ny to direct and con­trol the worker as they per­form their duties. Making a choice bet­ween the­se two would be dif­fi­cult as both have their pros and cons. Howe­ver, if you learn the dif­fe­ren­ces bet­ween employee and inde­pen­dent con­trac­tor, then the sel­ec­tion is quite easy.

  • Inde­pen­dent con­trac­tors will pro­vi­de con­sul­ting ser­vices to more than one busi­ness.
  • Here, we’ll dis­cuss the signi­fi­cant dif­fe­ren­ces bet­ween employees and inde­pen­dent con­trac­tors and help you figu­re out exact­ly which work struc­tu­re is right for your busi­ness.
  • Twen­ty years ago, the use of inde­pen­dent con­trac­tors (or, free­lan­cers) by estab­lished busi­nesses was not that com­mon.
  • Employees are often affor­ded more oppor­tu­ni­ties than inde­pen­dent con­trac­tors, making them more expen­si­ve hires than con­trac­tors.
  • Regard­less of what’s in the employ­ment con­tract, the IRS deter­mi­nes a worker’s sta­tus based on how the rela­ti­onship is actual­ly car­ri­ed out.

His per­so­nal mis­si­on is to take a genui­ne inte­rest in his cli­ents, and ser­ve as a pri­ma­ry resour­ce to them. And I own The Wal­ker Coll­ec­ti­ve, a law firm that caters to the con­trac­tu­al, intellec­tu­al pro­per­ty, and busi­ness for­ma­ti­on needs of crea­ti­ve entre­pre­neurs and small busi­ness owners. It could also include the pay­ment of back taxes, Medi­ca­re and Social Secu­ri­ty con­tri­bu­ti­ons, and other pen­al­ties for sta­te and fede­ral taxes.

Comments (0)

Schreibe einen Kommentar

Deine E-Mail-Adresse wird nicht veröffentlicht. Erforderliche Felder sind mit * markiert