One good benefit of a business to an economy is its ability to provide jobs to many people. Businesses hire workers to perform specific tasks for them, either to sell their goods or to render service. In return, they earn salaries which they use to improve their living. The amount they earn depends on the work they perform or the duration of the job given to them.
There are two kinds of workers that a business may employ: a contractor and an employee. How is a contractor different from an employee and vice versa? Do they have similarities as well?
Who is a Contractor?
A contractor is a company or a person that undertakes a contract to provide materials or labor to perform a service or do a job. In today’s economy, many businesses are trying to cut back on full time employees to save on expensive benefits. This can be done by hiring a contractor. A contractor can perform the same job with a fixed payment called the contract price.
A contractor uses the 1099 form for tax purposes. If you are a contractor, you are responsible in computing your own payroll taxes and remitting the same to the government on a quarterly basis.
Who is an Employee?
An employee on the other hand is an individual who works part-time or full-time under a contract of employment, whether oral or written, express or implied, and has recognized rights and duties. Employees are entitled not only of salaries and wages but also other benefits. These benefits include health care insurance, retirement benefits and other allowances.
An employee uses the W-2 form for tax purposes. If you are an employee, payroll taxes are automatically deducted from your pay check and are remitted to the government through your employer.
How to Determine a Contractor and an Employee
To identify who is the 1099 worker and who is the W-2 employee, you must know who control the work they do.
You are an independent contractor if you perform the following:
- Set your own schedule
- Use your own strategies to finish your assigned job.
- Accept task anytime or turn down offers of work
- Supply your own materials, tools and equipment
- Supply your own labor
- Have more than one client
On the other hand, you are considered as an employee if you perform the following:
- Have fixed hours or set schedule of work
- Get trainings by the company to perform your job more efficiently
- Complete all the tasks assigned by your immediate superior
- You are provided by the materials and tools you need to do your job
- Have only one employer
It is important to know your classification to be able to fill up the proper form and remit the correct amount of tax. This will not also create confusion to the company.
Both the contractor and employee help the business. Whatever you choose to become, remember to be a responsible citizen and pay the correct amount of tax due.