Independent Contractor Versus Employee

Should you hire an employee or independent contractor? Hiring a company employee requires you to provide benefits and pay employee income taxes, Social Security taxes, and Medicare taxes that could amount to almost 35% of an employee's wages. If you contract out the work to an independent contractor, you can just file a federal income tax form (Form 1099) at the end of the year; it will be the independent contractor's responsibility to pay taxes and seek benefits.

Who is an independent contractor? According to the IRS, a general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, not the means and methods of accomplishing the result. You cannot tell independent contractors when they can work or not work. If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty.

For additional information, visit www.irs.gov and search for the article "Independent Contractor vs. Employees."