Employee vs. Contractor
- July 31, 2016
- Posted by: admin
- Category: Business Tip
This Article by Admin Books, Inc. will show you how to classify a worker correctly. One of the top questions asked by business owners is how to determine if someone is an employee (W-2 worker) or an independent contractor (1099-MISC worker). Before you can determine how to pay a worker, you need to determine the relationship that exists.
Definition of Workers:
An employee is a person who works in the service of another person or organization. They are typically paid either a salary or hourly and will fill out a timecard. The employer will control what work the employee performs. The employee qualifies for unemployment compensation where an independent contractor would not.
An independent contractor is a person/business that offers services to the general public. They may have a specific license; such as a construction worker or accountant. They should always have a business license in the city/town they reside. Independent contractors will be hired by signing a contract and will provide invoices in order to be paid.
Common Law Rules:
There are 3 rules that the IRS will review to determine the status of a worker:
- Behavioral – Does the company control or have the right to control what the worker does and how the work is done?
- Financial – Are the business aspects of the worker’s job controlled by the payer?
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