Employee vs. Independent Contractors: What’s the difference?
As your business grows and expands, it is inevitable that you will begin to hire new employees or contractors in your business. The process of hiring should not be taken lightly however. Whether your hire someone as an employee or an independent contractor can influence many factors of your business. Before you hire either a contractor or an employee, you should consider the type of relationship that you plan on having with the person you plan to bring into your business.
According to the IRS, facts that provide evidence as to the degree of control and independence fall into three main categories:
- Behavioral: Does the company control or have the right to control what the individual/worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? These include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies for completion of the job, etc.
- Type of Relationship: Are there written contracts or employee type benefits such as insurance, vacation pay, etc.? Will the relationship continue and is the work performed a key aspect of the business?
Should you file a 1099, W-9 or W-2?
As the business owner, you will also need to consider that you will need to file different tax forms depending on whether you hire an employee or an independent contractor.
For each independent contractor, you will need to file a Form W-9. For each of your employees, you will need to file a Form W-2, and you will need to withhold and pay certain taxes and benefits.
Although there is no given rule or specific number of factors that qualifies an individual to be classified as either an employee or contractor. There are some factors that are considered in determining the classification of employee or contractor for individuals employed by you and your company. Listed below you can see some of these factors.
Some additional differences to consider
- Operates under a business name
- Has own employees
- Has own business accounts
- Advertises own business
- Has more than one client
- Has own tools
- Sets own working hours
- Performs duties controlled by others
- Completes Trainings for employer
- Works for only one employer
- Receives Benefits
- Uses tools provided by employer
If you are interested in more detail related to your situation, it is best to speak with an attorney.
Should you have any questions on hiring an employee or independent contractor, or need an employee or independent contractor agreement, please don’t hesitate to contact our attorneys at Mirshams Law, PLLC.
This blog does not provide legal advice, nor does it create an attorney-client relationship. If you need legal advice or if you would like to schedule a call you can reach us at 972-637-7898 to speak to an attorney or schedule a consultation.