The difference between an independent contractor and employee may seem insignificant and subtle, but the fact is, it can have serious legal and tax consequences for your business. As a result, it is crucial that you get to know the difference in these two things. It is also a good idea to learn why it is so important.
Independent Contractor vs. Employee Basics
An independent contractor is someone who works (as the name implies) independently. They dictate how and when they work and have more control over what they do or don’t do. An independent contractor doesn’t receive any benefits from the company, and the relationship is only related to the work that is being done.
An employee, on the other hand, is a person who has to work under the control of the company. Most employees don’t have much say in the work they do, when they work or how they do the job. Companies also provide employees with benefits, in some form, and have an ongoing relationship with the business.
Legal Differences Between an Independent Contractor and Employee
The primary consideration when figuring out a worker’s status as either an independent contractor or employee is the amount of control the company has. According to information from the IRS website, there are three main categories to be analyzed:
- Behavioral: This refers to if the company controls the work the person does and how the person does their work.
- Financial: If the employer controls how the worker gets paid, provides office space, tools, and supplies, or if they reimburse expenses.
- Type of relationship: Does the worker receive benefits, such as insurance, vacation pay, or pension plans?
The Importance of Knowing the Difference in an Employee and Independent Contractor
With this information, you have a better idea of the difference in an independent contractor and an employee. You may wonder why this matters. The fact is if someone is an independent contractor or employee has significant implications on the business regarding several legal issues, including taxes.
For employees, the company must withhold income taxes, pay and withhold Medicare and Social Security taxes, and pay unemployment tax to that person. For independent contractors, the person they work for doesn’t have to withhold or pay any payments or taxes on their behalf.
It is imperative that when you are ready to hire someone to work at your company, you have a firm grasp on the difference between an independent contractor and employee. This will allow you to classify and treat the new hire accordingly. If you fail to do this, you are going to create several legal headaches, which can have dire effects on the financial wellbeing of the company.
If you have more questions regarding your business, it is best to hire a business lawyer in Florida. Contact the Law Office of Peter M. Feaman, P.A. to learn more.