Employees vs. Independent Contractor

When you start to hire people for your company it may start off as someone that watches your shop for you on and off, someone that does your social media, or someone that runs one of your markets periodically.

Independent Contractor

The first person you hire would most likely be considered an Independent Contractor. This is a person who is not an employee of yours, but you hire as a freelancer.

These types of workers have their own computers and they are hired for a short term basis or on a specific project, such as doing social media for you, running a market of yours, etc.

Most babysitters would be considered Independent Contractors, for example. They come in, get paid, and pay their own state and federal taxes out of the money you give them at the end of the year.

Most of the time you will be hiring people for a flat rate and cutting them a check or cash. Then it’s a done deal. You won’t have to file taxes as if they were an employee but you will need to report their income if they made $600 or more in a year from you. This is provided to the IRS on a 1099 form by the end of January. You can easily submit these on many different tax websites (go with a name you recognize like QuickBooks) or with your accountant. It’s not as hard or expensive as you may think.

These days, we hire a lot of day-of staff  at our markets and many of them do not meet this threshold. But just to be safe, we still have them fill out a form called a W9 form that you can get a link to it by clicking here. You really only need the first page for your files, but when I give it to someone I give them all 4 pages.

Employees

When you get to the point that you need to hire an employee, it’s time to also hire a payroll service, accountant or learn more about QuickBooks Payroll services.

Employees are people that work for you. You can manage their schedules, productivity, and time. They use your business equipment and may work part-time or full time. You’re in charge of paying their federal taxes, a portion of their unemployment taxes, Social Security, Medicare taxes, and more.

If for some reason you decide to let one of your employees go, they also can file for unemployment payments from the government and this can later raise your taxes.

Once you start to grow your company it is really important to know the difference between Independent Contractors and Employees, or it could mean big fines for your company.

A great article that goes over Independent Contractors and the difference between them and Employees is on my favorite website Investopedia. Click here to find out what they have to say. 

Once you get to this point and size in your company, it’s a great sign and means you’re doing something right. It also means that it’s time to invest in hiring an accountant or professional to make sure you’re on top of everything that comes along with this size company.

Here’s an article from the IRS on figuring out whether you should designate a worker as an employee or contractor! 

Have any resources for employers? Add it in the comments below!

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