Independent contractors and employees are not the same, and it is imperative that you see the difference. Understanding this specific distinction will help you know how you should position yourself to be hired and effect what taxes will be withheld and the various taxes for which you will be liable.

What is the difference?

An Independent Contractor:

Operates under a business name
Has got their very own workers
Retains a separate small business bank checking account
Promotes their company’s services
Bills for labor completed
Possesses more than one customer
Has own tools and also establishes own personal work schedule
Maintains company records

An Employee:

Does responsibilities determined or managed by other people
Is supplied training for jobs to be performed
Functions for only one workplace

Many small business owners rely on independent contractors with regard to their employment needs. There are numerous benefits to making use of contractors over getting employees:

Savings in personnel costs
Lowered liability
Flexibility in acquiring and firing

Why Should It Make a difference?

Mistakes in classification of someone as an independent contractor may have a range of damaging legal consequences.

Should your independent contractor is determined to satisfy the legal meaning of a staff member, you most likely are forced to:

Reimburse them for wages you should have given them within the Fair Labor Standards Act, not to mention overtime and minimum wage
Pay back taxes and fees and penalties designed for state and federal income taxes, Social Security, Medicare as well as unemployment
Cover all unpaid injured staff workers’ compensation benefits
Render employee benefits, such as medical care insurance, retirement, and so forth.

Tax Considerations

Go to Irs Independent Contractor or Employee helpful guide to read about the taxation significance connected with either circumstance, down load and fill in a form to get the Internal revenue service officially confirm your workers’ standing, and discover other related information.

Employment Information

There is no simple evaluation method for figuring out if an individual is surely an independent contractor or an employee under the Fair Labor Standards Act. On the other hand, the subsequent guidelines ought to be considered
The particular degree to which the services provided are an integral part of the principal’s company
The duration of the business relationship
The level of the alleged contractor’s investment in resources and equipment
The makeup and amount of regulation from the business owner
The assumed contractor’s options for profit and loss
The degree of initiative, judgment, or foresight in open market competition with others that is required for the success of the claimed independent contractor
The level of independent company organization and functioning

Whether a person is an independent contractor or an employee commonly depends on the level of control used via the employer over the work being done. Understand Equal Employment Opportunity Laws – Who’s Covered? to learn more about a way to determine whether an individual is an independent contractor or an employee, and which are covered according to federal laws.

Are You a Contractor or an Employee?