Contractor VS Employee

Do you know the different between a contractor & an employee?

If you have people working for you in your business, then you either have contractors or employees (possibly both). It’s important to know the distinction and rules behind each.

Independent contractors are people that specialize in a trade or service and offer that to individuals or businesses.

Employees are people that work for an employer who controls how and where their work will be done.

The IRS has setup 3 general criteria to know how a worker should be classified. These criteria are broken down into Behavioral Control, Financial Control and Type of Relationship. These boil down to:

Contractor

o Sets their work hours & where they work

o Sets their own prices, generally flat fee for work performed (no guarantee salary)

o Ability to solicit work from other companies or individuals

Employee

o Business decides when & where person works

o Regular wage amounts set

o Periodic or on-going training & benefits are provided


It's important to note that one individual should never be an employee AND a contractor at the same time in your business.

Misclassifying a worker can result in penalties. Talk with your accountant if you’re unsure about the workers you are paying!


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