Not only do you lose out on the benefits of being an employee, but your taxes go up! It is particularly rampant in the janitorial, home care, trucking, and delivery sectors. Workers have filed major lawsuits against companies alleging that they should be treated as employees. Recent cases in the news include lawsuits by Uber drivers , port truck drivers , janitors , and home cleaners. These workers are often owed thousands of dollars in overtime pay and other wages and benefits.
There can be important consequences for you. If your concern is with your tax burden, talk to a tax professional. The IRS also has additional information online. There are hundreds of XY Planning Network financial advisors ready to help. Connect with one today. All Rights Reserved. What is a ? Who Gets a ? Determining Contractor Status If you try to treat individuals who should be classified as employees as contractors, you could incur severe penalties at the hands of the IRS.
In general, a worker is an employee if: Your business controls what work will be done and how it will be done. Your business provides the equipment and materials the worker uses to complete the work. Your business provides benefits to the worker like paid time off, insurance, and retirement benefits.
Your business pays the business expenses of the worker like office rent, insurance, supplies, or other expenses and reimbursements. In general, a worker is an independent contractor if: The worker services many different customers or clients who pay them directly for their services. If you need help with employee classification or filing the appropriate paperwork, post your need in UpCounsel's marketplace.
Updated June 25, What is a Employee? Why is the Employee designation important? If you have a traditional employer-worker relationship, you must pay several taxes, including: Medicare Social Security Unemployment Income In addition to paying Medicare and Social Security taxes , you must also withhold these taxes from the paychecks of employees.
Do not designate someone as a Employee if: Company provides training on a certain method of job performance. Tools and materials are provided. Employees must follow set schedule. Designate someone as a Employee if: They follow their own schedule.
Use their own tools. Can refuse certain jobs. Finishes assignments using their own method. Examples of what a Employee vs.
W2 Employee You may not have to go through the headache of figuring out who qualifies as a employee. Be aware, though, that misclassification of contractors comes with stiff penalties, so make sure your contractors really are what you classify them as. How do you go from employee to independent contractor or vice versa? If you want to transition your contractor to a full-time employee, you need to hire them for an open position.
Using a service like Square Payroll, you can easily transition your contractor to employee and start withholding taxes and paying employment taxes. Since workers are assumed to be employees unless proved otherwise, switching someone from a W-2 to a may trigger some questions from the IRS.
Make sure you talk with your lawyer and accountant before making these changes. What is the independent contractor tax rate? The self-employment tax rate made up of Social Security and Medicare taxes is Please note that the information contained herein is limited in scope and is only intended as an overview of the differences in reporting forms for independent contractors and employees. The information is based on current and active legislation, which may change in the future.
For guidance or advice specific to your business, you should consult with a tax or legal professional. Sign up now to receive expert advice on hiring, tax compliance and business management straight to your inbox.
Back to Town Square. Get more business stories, delivered once a week Access the best Town Square stories right in your inbox with our weekly newsletter. Square Payroll Pay W-2 employees and contractors with ease. Get Started. Back to top. Grow your team the right way. Sign up. Expertise: Contractors typically are well trained in their field and can hit the ground running with minimal training they are independent, after all. They can focus on a very specific project that you may not have expertise in.
Less control: Businesses have less control over independent contractors, who tend to enjoy a greater amount of autonomy.
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