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When running a business, it is important to be able to differentiate between an employee and an independent contractor. This is because businesses can file the correct forms for these individuals at the end of the year when tax time comes along.
What is an Employee?
An employee is someone you have to train, assign tasks, set specific hours, and dictate how their work should be completed.
What is an Independent Contractor?
An independent contractor is someone that sets their own hours and decides how and when to get the job done.
Differences between Employees and Independent Contractors
Here are some ways employees and independent contractors differ.
Control
The level of control you can exercise over an independent contractor and an employee can vary considerably. When you hire an employee, you can exercise more authority in terms of methods and processes to perform the work.
On the other hand, when you hire an independent contractor, you will rely on them to perform the work. They will likely use specific techniques to perform their tasks and complete the job. Depending on the contractor you are choosing, they may change a few aspects of their work or their method to satisfy the job. But generally, they have standard techniques and methodologies.
Expertise
Typically, employees have to undergo some training or take educational courses to perform the job accurately.
When it comes to independent contractors, they already have specialized training and education to provide the specific services you are requiring. You don’t have to invest your time and effort to train them.
In fact, due to their immense knowledge and expertise, they may even guide you to make changes to streamline and optimize your processes.
Management
Management is another factor that differentiates the employees and contractors significantly from each other. In the case of an employee, you need to manage and supervise the work.
Fortunately, by outsourcing your work and using independent contractors, you can save yourself from being involved in that specific service or task and focus more on your business.
Bottom Line
Knowing the difference between an employee and an independent contractor will help you comply with IRS filing requirements and avoid any penalties that may come about from treating an individual incorrectly.
CBK Pros has vast experience in payroll and tax compliance and can help you determine the best structure for your business. Feel free to contact us with any questions.