Employee vs. Independent Contractor

You’re ready to hire. Should you go with an employee or independent contractor? Your decision will have implications for your business. In this blog post we’ll address the differences between employees and independent contractors, the benefits of both and how to tell the difference between the two.

What is an Employee?

A simple definition of an employee is someone you hire and directly manage. Employees are generally provided training by the business and work for only one employer. A benefit of hiring an employee is that you get to set a schedule and train the person in the way you want things done. Employers generally have more control over the end result in this situation.

What is an Independent Contractor?

A contractor can have his or her own business. They do not fit within the company framework. Contractors can work for more than one business at a time and they set their own schedule. A major advantage to hiring a contractor is that you don’t have to pay into Social Security, Medicare and unemployment. You also can set the terms for employment. If you don’t like their work you can let them go at the end of the contract.

How do you know?

The IRS offers some general guidelines to help you determine whether or not you have an employee or independent contractor. The agency looks at degrees of control and independence. The three categories they use are behavioral, financial and relationship.

• Behavioral refers to whether or not your business has the right to control how the worker does his or her job.
• Financial is a measure of how the worker is paid and if he or she is reimbursed.

• Relationship examines any contracts or benefits.

There are several questions to ask yourself to determine if you’re hiring an employee or independent contractor.

1. Do you want full control of how the person does the work? If so, the person will be an employee.
2. Do you plan to have the worker paid regularly via your normal payroll system as opposed to having them send you invoices for their services? If so, the person will likely be an employee.
3. Will the worker will be paid by the project rather than hourly? If so, they’re likely an independent contractor.

4. Will the person be eligible for company benefits? If so, the person will be an employee.

These are just some of the important things to consider when determining if you’re hiring an employee or an independent contractor. If you need help you can fill out a Form SS-8 and send it to the IRS. For quicker results consider calling or email the professionals at Structure Law Group. We’re happy to help.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

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