What’s the Difference?

Employee? Contractor? What’s the difference??

So, you’re ready for some help with your business? That’s great - and scary, right? 

At Ox Boox, we’ve been there! And if you’re there, too, you don’t have time to read a wordy blog, so we’ve consolidated some guidelines below. 

The IRS uses three factors to help determine whether a worker is considered a contractor or an employee: financial control, behavioral control, and type of relationship.

Contractors

• Often own their own businesses.

• Often works on a short-term basis for a specific project.

• Often use Contractor Engagement Agreements to outline the scope of their work and details of their pay, etc.

• Usually has autonomy over when, where, and how the work gets done.

• They use their own resources to complete a job. (ex. Contractor’s laptop)

• They may sub-contract some of the work, if allowed in the Contractor Agreement.

• Contractors set their own pay per hour or per project. They will invoice for their time and/or deliverables.

• Employers do NOT regularly withhold tax from paychecks. Employers will issue 1099s in January, and contractors are responsible for paying taxes themselves.

• Employers do NOT pay employment taxes for contractor pay.
  

Employees

• Usually work on a regular basis with their employer.

• Their hours and the location of the job are set by the employer.

• They use employers’ resources to complete their work (ex. Company-owned laptop)

• They may not sub-contract the work; rather, they must do it themselves.

• Employers set the pay rate for employees. They are paid regularly and do not invoice their employer for their time and/or deliverables.

• Employers withhold tax from paychecks. Employers will issue W-2s in January showing how much tax has been withheld.

• Employers pay employment taxes for contractor pay.

There are consequences for misclassifying workers, so be sure you’re clear on the differences before moving forward. These are general guidelines, but of course there is more to the story than can be summarized in this blog. Read more at this IRS website, but fair warning … you’ll need something to get you through … we suggest chocolate.

Gusto is also a wonderful resource for employers. Check out this article.

Need more help? Contact us!

We can answer your questions, so you’re off to the races!

Don’t like racing? We can set-up your contractors and/or employees, so they can get paid. (You can still eat chocolate!)

Photo by Neil and Zulma Scott on Unsplash