Independent Contractor: business owners, no taxes are withheld from pay, they decide their work hours, have a business to business relationship with their clients, usually submit invoices for the work that is done, they work for many different people, and use their own equipment and supplies.
Employee: The boss defines work hours, your employment with them is long term, you only work for one company, the employer provides the supplies or equipment and taxes are withheld from the pay.
The IRS has 3 tests to use to determine if the relationship you have with your workers is an Independent Contractor or an Employee: Financial Control, Behavioral Control, and Type of Relationship.
1. Financial Control:
Independent Contractors are usually paid a flat fee for projects or jobs. Independent Contractors use their own tools, equipment, and supplies. They are not reimbursed for expenses that they incur for the project, and Independent Contractors pay self-employment tax.
Employees are usually a guaranteed company wage or salary.
2. Behavioral Control:
An Independent Contractor sets his own hours and decides how and when he will get the job done. You are only in control of the result of their work.
Employee: You set the work hours, dictate how the work is to be done and what work they are to do.
3. Type of Relationship:
If the person working for you is only a short term contract, does a specific project for your company and pays for their own benefits, they are an Independent Contractor.
If the person working for you does core work for your company, plan on working for you for a long time and offer them benefits, they are an Employee.
At the end of the year and Independent Contractor, receive's a 1099-Misc, and Employee receives a W-2.
If you still are confused, click the link below to be taken to a page on the IRS.gov site that has more explanation. Feel free to contact us if you would like to visit about this
Candace Stevens, CEO/President of
Number Cruncher LLC
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