Small Business Bootcamp: Independent Contractor or Employee?

Nathan S. Gibson diverse group meetingFrom BrightMove Recruiting Software, Onboarding Software and Staffing Software —  “Score.org (a nonprofit association dedicated to helping small businesses get off the ground, grow and achieve their goals) can help you figure out the difference.

When you need to bring in more help, the first thing to figure out is whether it’s best to hire an employee or an independent contractor. It’s best to start by understanding the differences between these two types of workers. 

Employee

Someone who performs services or labor for you on an ongoing basis, and you control what will be done and how. Employees stay on past the completion of each project. They tend to work at your businesses location, using equipment and tools that you supply. 

Contractor

Someone who performs services or labor for you, but is responsible only for the results, not how the project will be executed. A contractor’s work is usually done at the completion of each project— there are no ongoing responsibilities. Often they charge more, use their own equipment, set their own schedule and take care of their own business expenses. 

It’s a good rule of thumb to base hiring decisions not only on the type of working relationship you want to have, but also your tax responsibilities. 

Why it’s Different

Since contractors are self-employed, an employer is more like the contractor’s client than their supervisor. That means the contractor is responsible for paying taxes on their earnings. Independent contractors also don’t get a lot of the same benefits as employees: they’re not eligible for unemployment benefits, worker’s compensation, and social security. Plus, they don’t get offered sick leave, vacation, health insurance, and any other benefits an employer might offer to attract an employee. The contractor shoulders all of these costs since they’re treated like a self-employed business. 

All of this is fine as long as the independent contractor gets to be their own boss as it’s intended. Problems can arise when employers want the best of both worlds—they hire their workers as independent contractors, but treat them like employees, dictating when and how the work is done. Employers avoid paying payroll taxes and providing benefits, but in essence they have an employee who they can manage directly….”

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