Employee vs Contractor
Video: W4 Employee vs 1099 Contractor
Video Transcript: Transcript
- An Employee is hired by the employer to work on a regular basis in exchange for a wage, while a Contractor is a self-employed person who provides services to another organization for a fixed or contract rate.
- Employees work in someone else’s business, while Independent Contractors work for themselves and are their own boss.
- The Employer controls the days, timeframe and scope of hours worked for an Employee, while a Contractor is given a project with a deadline and the hours are not dictated.
- Employees are typically either part-time (hourly), full-time (hourly or salary), permanent, and awarded benefits offered by the company while paying the Employer portion of the taxes (FICA, FUTA, SUTA).
- Contractors are often part-time, temporary, or project-based and receive limited to no benefits and pay self-employment taxes. Contractors generally receive a fixed compensation per job.
- An Employee fills out an IRS form W4 when they are hired, which gives instructions on how to set up their tax deductions. They receive a W2 at the end of the year to enter in their Tax Return.
- A Contractor fills out an IRS form W9 when they are hired, which gives the employer their tax ID number and address. They receive a 1099 NEC (Non-employee Compensation) at the end of the year to enter in their Tax Return.
- Red Flags: If a client wants to put their 1099 contractors in Timekeeping, they are probably employees.
- We, as a third party, are not ultimately responsible for categorizing employee vs contractor. This falls under the Human Resources side of the business, not the Payroll Department.
- Examples of 1099 Contractors:
- Umpires or Soccer Referees
- Massage Therapist (rent space, work for themselves)
University Course: https://learning.myisolved.com/courses/97
Title: Payroll Basics
Course Description: This course is designed for those new to payroll and who need a basic explanation of what it is that you're expected to do, know, and update as a payroll administrator. In this video we will cover some of the basic responsibilities within the payroll department, employee classifications, and pay types
IRS Article:
Worker Classification 101: employee or independent contractor | Internal Revenue Service (irs.gov)
Helpful Article:
Employee vs. independent contractor: Differences you need to know | Legalzoom