The Difference Between Contractors and Employees

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ContractorBusinesses are sometimes tempted to save money by hiring contractors instead of employees. It is important to know the distinction between the two. The Internal Revenue Service and The Department of Labor state that a contractor must have more independence than an employee. Independent contractors set their own schedules. The number of hours worked is irrelevant when determining if someone is a contractor or employee. Noncompliance with the laws can result in the business owing back employment taxes as well as penalties.

Some businesses use independent contractors for short projects. Others find contractors helpful in areas such as law and finance, where they do not necessarily need the contractor’s expertise on a regular basis. Positions that require training are best left to employees. Because independent contractors are not on staff at the business, they cannot be managed like an employee. Managers should understand the legalities of the independent contractor relationship. If a business tells a worker when and where to work, they have an employee, not a contractor.

The government is looking more closely at businesses who use contractors to make sure they are in compliance with the law. Companies that give an independent contractor classification to full or part-time staff so they do not have to pay employment taxes are getting caught. A carefully structured independent contractor agreement and good records can keep a business out of trouble the IRS and Department of Labor.

Read more at The New York Times.