From Zenefits, Sarah Siwak shares the differences between employees and independent contractors. Sarah writes:
To determine employment status, the IRS generally looks at how much control an employer has over how the contractor does her work. To know whether your worker is actually an employee and not a contractor, take a look at whether she falls under any of the contractor categories.
Independent Contractors vs. Employees
Contractors Employees Paid by the job or project Paid by salary, or by the hour Can control how work is done, even if employers control the end result Receive training from an employer and can be required to do work how employers prefer Work for more than one company at a time Often work for one company Provide own benefits Receive employee benefits Invest in own equipment and facilities rather than using the employer’s Receive equipment and tools to do work, at a set site or office Perform project-based work Perform work that’s critical to the company’s day-to-day operations Can work own set hours Can be required to work employer-set hours Cannot be required to wear uniforms Can be required to wear uniforms
Why does employee classification matter?
Employees are subject to specific compliance requirements. Whether you classify a worker as an employee or independent contractor will impact:
- Document filing/collection requirements (e.g. 1099 v. W-2)
- Federal tax withholding requirements
- Benefits, wage and time requirements
Improperly classifying workers as independent contractors when they’re really employees can open businesses small and large up to significant and sometimes company-bankrupting legal fines and penalties.
Read the full story Contractors or Employees? An Employee Classification Test