There are many differences between employees and contractors, the biggest and most important to you as their employer is your requirement to deduct payroll taxes from their pay. While independent contractors are responsible for filing and handling all their taxes on their own, employees will need to have these taxes deducted from each check. So how do you know for sure whether your worker is an employee or a contractor? We'll break it down here.
How to determine worker status
The easiest way to determine if a worker should be treated as an employee or a 1099 contractor is to ask yourself:
- Do I have control over when, what, and how this worker does their job?
- Does my company provide this worker with the tools or supplies needed to perform their job?
- Does my company reimburse this worker for business expenses, or supplies they've purchased?
- Does this worker get employee-type benefits like paid time off, sick days, or health insurance?
If you answered yes to any of these questions, then it is likely the worker should be classified as an employee.
Want to learn more about what's required by the IRS, how to get them to classify your worker for you, and what forms you'll need to submit? Read about understanding employment classification. You can also learn more about filling out IRS Form SS-88.