Independent Contractor

vs. Employee
The main difference between hiring an
independent contractor and an employee is who
has the power of control. The payer has the
power to control only the result of work of an
independent contractor; they cannot control
what will be done or how it will be done. On the
other hand, the payer has the right to control
what and how employees do work.
PROS & CONS
Most people believe hiring an independent
contractor is better than hiring and employee.
The main reason for this belief is that you
generally have to pay less money for the work
when an independent contractor does it; the
contractor pays for their own tools, permits,
licenses, and taxes unlike employees. However
there can be serious consequences when a
business classifies a worker as an independent
contractor when they should be listed as an
employee.
INDEPENDENT CONTRACTOR
OR EMPLOYEE?
There are some resources available to help
make the decision more straightforward by
posing questions, such as the right to control
test or common law rules however, in the end, it
is up to the company to classify their workers. If
the company is still not able to classify a worker
they can fill out an SS-8 form with the IRS who
will then classify the worker. A downside to this
method is that it can take at least six months for
the IRS to respond.
LEGAL
Legal protection and liability will change
depending on the nature of the working
relationship. Under the legal doctrine
"respondent superior," an employer is legally
responsible for the actions of its employees.
This rule only applies if the employee is acting
within the course and scope of employment. An
employer is generally not liable for the actions
of an independent contractor that is hired. This
is not always black and white, which is why it is
good practice to carry workers compensation
insurance and also require that the independent
contractor carry workers compensation
insurance. If an employee is misclassified as an
independent contractor, the employer may be
required to pay back taxes and penalties to the
IRS, reimburse them for missed wages, and pay
any missed benefits, as well as providing future
benefits.
TAXES
Generally, you must withhold income taxes,
withhold and pay Social Security and Medicare
taxes, and pay unemployment tax on wages paid
to an employee. You do not generally have to
withhold or pay any taxes on payments to
independent contractors.
For employees, the employer must withhold
payroll taxes under FICA.
For Social Security and Medicare the employer
and employee must each pay in 7.65% of gorss
income.
Independent contractors are required to pay these
same payroll taxes on their own and file a SE
1040, since they are considered self-employed.
15.3% of self-employed income is to be paid in
for Social Security & Medicare.