| Whenever a business starts there is always the | | | | employee generally does not have an investment |
| question of how the people that provide services | | | | in the company unless there are stock options |
| for the business will be paid. Will those services be | | | | available. They usually have any expenses they |
| performed by employees or will independent | | | | incur for things such as travel, phone, or |
| contractors be used? | | | | equipment reimbursed. |
| Before the business can determine how to treat | | | | An Independent Contractor is not reimbursed for |
| payments they need to know and make clear the | | | | any expenses. They generally have a business of |
| business relationship. It is important to establish | | | | their own or a significant investment in the |
| this relationship because an employee has taxes | | | | facilities and equipment used to perform the work. |
| withheld, social security and medicare matched by | | | | An Independent Contractor is free to offer |
| the employer, unemployment insurance paid, | | | | services to the general public and can take on |
| workers compensation insurance paid and often | | | | jobs for other companies or individuals. They |
| benefits provided. An independent contractor just | | | | generally advertise their services and maintain a |
| gets paid. It is a big expense difference. | | | | home office or visible business location. They |
| To determine whether an individual is an | | | | generally get hired and paid by the job, usually a |
| employee or and independent contractor, the | | | | flat fee. Although some jobs can be billed hourly. |
| relationship of the business and worker must be | | | | An Independent Contractor can make a profit or |
| examined. It comes down to does the business | | | | loss on the job. |
| have control over what and how a job will be | | | | Type of Relationship |
| done or do they just control the results of the | | | | An Employee generally signs a employee contract. |
| job. The determination falls into three categories: | | | | The employee is generally provided benefits such |
| behavior control, financial control, and type of | | | | as insurance, pension plan, vacation and sick pay. |
| relationship. | | | | Employee's are engaged for an indefinite period of |
| Behavioral Control | | | | time. They perform activities that are a regular |
| Employees are generally subject to instructions | | | | daily part of the business. They fill out an IRS |
| about when, where, and how to work. The | | | | W-4 form that tells the employer how much |
| employer controls when and where the work is | | | | taxes to withhold. They are not free to do |
| performed and what hours the person will be at | | | | business for other companies and in fact some |
| the job. The person is told what tools and | | | | companies have penalties if they do. |
| equipment to use, who else can be hired to assist | | | | Independent Contractors have job by job |
| with the work and where to purchase supplies | | | | contracts or for specific project or periods of |
| and services. They are told what work is to be | | | | time that state they are responsible for their own |
| performed by a specific individual and what order | | | | taxes. They are not provided with any benefits. |
| or sequence to follow. Employees also may be | | | | They fill out an IRS W-9 form telling the IRS that |
| required to receive training by the employer. | | | | no taxes are required to be withheld. |
| Independent Contractors can be hired to do a | | | | It is important to determine what kind of |
| certain job in a certain place and be completed by | | | | relationship from the beginning of your business. If |
| a certain time. However, how the job is done is | | | | you treat an employee as an independent |
| up to the contractor. When the work is | | | | contractor and you have no reasonable basis for |
| performed, what equipment is used, who is hired | | | | doing so, you may be held liable for employment |
| to assist and where materials and supplies are | | | | taxes for that person. Also, if you pay an |
| purchased are up to the Independent Contractor. | | | | individual as an Independent Contractor, they do |
| They also obtain and pay for their own training. | | | | not qualify for unemployment of workers |
| Financial Control | | | | compensation so if they try to collect it, you will |
| An employee is generally guaranteed a regular | | | | want to be ready to verify they are not an |
| wage amount for an hourly, weekly or other | | | | employee. |
| period of time, even if the wage or salary is | | | | More information about Employees and |
| connected with a commission. They may be paid | | | | Independent Contractor is found in the IRS |
| whether work is being performed or not. An | | | | publication 15A. |