Employee v. Independent Contractor – Know the Difference

As a business owner you have options as to how you…well, run your business. You can either hire employees who basically have to do what you tell them to do, or you can hire independent contractors who get you the results you want by doing the work however they want to get it done.

There are definite advantages and disadvantages to each type of person you hire, and here are a few “fun facts” to help you decide how and when to use each one.

What You Offer                                   Independent Contractor                  Employee

Benefits                                                             No                                              Yes

Overtime                                                           No                                               Yes

Unemployment                                                  No                                               Yes

Business Expense Reimbursement                  No                                               Yes

Company Trainings                                           No                                               Yes

Own Equipment Used                                       No                                               Yes

Salary/Hourly                                                    No                                                Yes

Responsible for Profit/Loss                               No                                               Yes

Defined Length of Employment                        Yes                                               No

Exclusive Employment                                      No                                               Yes

It’s important for tax purposes to make sure you correctly classify your employees and independent contractors. Accidently claiming an employee as a contractor could trigger an IRS, state or unemployment investigation and have you paying thousands of dollars in back taxes and defense fees – even if you win.

To reduce the risk of an investigation by a state or federal authority, familiarize yourself with and follow the rules, as well as document the relationships you have with your workers and vendors. It’s always a good idea to have written contracts stating the terms of the expectations at the ready.

If you have any more questions about this topic or anything tax or accounting related, click here to schedule a time for us to talk.