What is the difference between an Independent Contractor and an Employee?

As a business owner it is important to understand how employees are classified. Whether classified as an employee or contractor, you have responsibilities to the IRS and state. At times the line between the two can seem blurry but not to the IRS which is why we recommend consulting with BASC Expertise. The last thing we want is for you to end up owing money or other penalties.

Here are six basic differences of employees and independent contractors:

1.      Income reporting: Employees receive a W-2 prepared by their employer. A Contractor receives a 1099 from their clients or businesses with whom they work.

2.      Who they work for: Employees work for a business. Independent Contractors are business owners who work with other businesses.

3.      Payroll taxes: Employee taxes such as Medicare and Social Security are filed by the employer. Contractors are responsible for filing their own employee and employer taxes as they take on both roles.

4.      Work hours & location: Employees have a set location and hours in which they work. Contractors are assigned work they can complete at any location and any time of the day.

5.      What they work on: Employees are responsible for core work of the company whereas Contractors are not part of the core business function.

6.      Equipment: Employees utilize equipment as directed by the employer whereas Contractors utilize their own equipment of choice.

Please call us for a complimentary initial consultation to discuss your small business accounting and bookkeeping needs.

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