Your business is up and running and you’re finding yourself getting busy. You know you need morehelp, but you’re unsure if you want to hire an employee or bring in an independent contractor. You might also be wondering the difference between the two. It’s very important to discern the status of these workers as that status makes all the difference for your company and your taxes.
We’ve compiled a list of the primary differences between the two and have listed them here for your reference. We hope you find it helpful as you decide which is best for your business.
- By law, you’re required to withhold taxes for an employee. These include Social Security and Medicare taxes as well as the unemployment taxes you’ll need to pay for an employee. There are no such requirements for an independent contractor.
- An employee is obligated to follow the rules of the company about when they work, how they work, and where they work. An independent contractor provides a service but is given little instruction about how or where to work.
- An employee rarely has the opportunity to hire people to work under him if the workload is too intensive, where as an independent contractor has that ability.
- An employee is typically paid an hourly wage or a salary with a specified pay schedule. An independent contractor is paid for the service he provides in a lump sum.
- For an employee to travel or go above and beyond normal duties, you, as the employer must reimburse the employee for mileage or travel expenses. An independent contractor incurs their own expenses as those are typically built into the fees for the project.
- Unless otherwise approved by you, an employee typically works only for you. An independent contractor may work for many different people and/or businesses.
- For an employee, the employer is required to provide the equipment needed to get fulfill the job duties whereas independent contractors provide their own equipment.
Hiring an employee or an independent contractor comes down to a matter of preference. And there are many nuances to each of these factors. We recommend consulting an attorney for specific legal advice and guidance before proceeding.
Should you decide on independent contractor, be sure to check out the services we offer for filing the required tax documentation – a 1099.