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Employees vs Contractors: Which Is Right for You?

From the perspective of the IRS, every taxpayer is an employee unless the taxpayer can prove independent contractor status. Knowing the difference between the two is important when deciding how to handle hiring workers for your company. 

A lot of businesses hire both classifications of workers to meet the needs of the company. The hiring process has some similarities but there are differences as well. 

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Are you looking to hire someone? You should consider the finances and hiring process of employees vs. contractors before going forward. Keep reading to find out more. 

What is an Employee?

When you hire employees, they receive a W-2 form for tax purposes. Employees receive a salary or an hourly wage. The employer controls the work to be done and the way in which it is completed. 

The employer makes the schedule for the employee with little or no input from the employee. The employer withholds taxes and sends them to state and federal taxation agencies.

Employees are usually eligible for benefits like Workers’ Comp, health insurance, and paid time off. 

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What is an Independent Contractor?  

When you hire freelancers or independent contractors, they are responsible for paying their taxes. Independent contractors need to plan for their own health insurance and other benefits. 

A freelancer or contractor has more say about when they work and how they complete the work. If they have an expectation of a certain amount of income, they have to figure out how many contracts they need to have or how many jobs they need to complete to make an adequate amount of money. 

What is the Difference When it Comes to Hiring? 

When your company is hiring, whether it’s for permanent employees or independent contractors, the role is posted on your website and other online job boards. With contractors, you may also look for ads for people who do the type of work you need.

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Photo by Adeolu Eletu on Unsplash

The difference comes in the hiring. When hiring employees, you have to supply them with a clear description of the job duties and the qualifications necessary to fill the role. After the interview process, when you choose the best candidate, the paperwork begins…tax forms, employee handbook, enrollment in the health insurance plan. 

Next comes training and supplying the new hire with the necessary equipment like a laptop, phone, etc. 

For an independent contractor, you don’t have to concern yourself with long-term fit with your company. You evaluate their previous work and expertise to complete the job you need to be fulfilled.  

You work out the contract and payment details and possibly fill out a W-9 form. Work can begin immediately. 

Looking for an easy way to generate a paycheck stub? You’ll be impressed with our trouble-free process. 

Employees vs. Contractors 

Now that you know the differences pertaining to employees vs. contractors, you can decide which is better for your particular situation. If you need more information, you can file Form SS-8 with the IRS to describe the dilemma. 

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