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Contractor or Employee?

Having a business and running it by yourself becomes such a daunting task so very quickly. At some point, you may feel the need to hire someone to help you run those everyday tasks. Make sure that you know the rules in hiring someone. You could get yourself in a bit of hot water if you aren't too careful. There is a big difference between a contractor and an employee. Let me break it down for you a bit.


Contractors have somewhat free reign. Now, I'm not saying that they can come in and do whatever they want in your business. What I am saying is that you cannot determine the what will be done or how the work will be done. The only thing the payer has control over is "the result of the work". I know the idea of not paying employment taxes is intriguing and you would want to call someone that works for you a contractor in order to avoid those taxes, but make sure that you are following the guidelines so as to not get you or your business in trouble. Contractors will need to fill out a W-9 prior to starting work. That way, at year end, your bookkeeper or software will have the information needed to provide them with a 1099-NEC, if what you paid them was over $600 in the year.


Employees are set up to where they have a designated time and place to be and have a specific way that the work is to be done. With an employee, when the business runs payroll, there will be taxes withheld out of the employee's paycheck. Then there will also be taxes that the employer must pay that correlate to the amount paid to the employee. See why it's intriguing to want to classify your worker as a contractor? Of course, no one wants to have to pay more taxes than necessary. Then again, no one wants to pay fines and penalties either. Employees need to fill out a W-4 prior to starting work. This form allows your bookkeeper or software to know what taxes need to be withheld.


The IRS has additional information to help you determine whether your worker is a contractor or an employee. There are 3 basic traits to determine if your worker is a contractor or employee.


For more information please visit: https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation

or reach out to me if you have any questions about what your worker might be.

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