If you are someone who pays other people to do work for you or your business, you need to understand the difference between employees and independent contractors. We are always surprised by how many people are unclear on the differences, so we decided to shed some light on the situation with this blog post!
Essentially, an employee works for your company on a regular basis and neither of you expects this working relationship to end unless they give you notice that they quit or you terminate their position for a legitimate reason. Meanwhile, an independent contractor works for you on an assignment-by-assignment basis. Neither of you are guaranteed that they will be available next time you need similar work done or that you would choose them over another worker next time you need similar work done. Read on for more specific details.
Employees
Payment: An employee is paid at hourly or salary rates. This occurs automatically, or at least on a consistent basis, via payroll.
Tax Requirements: Each year, you must report how much you have paid your employee on a W-2. They must initially provide you with their name, address, Social Security number, tax filing status, and number of exemptions on a W-4.
Withholding: You should withhold income tax, Social Security, and Medicare from wages paid.
Independent Contractor
Payment: An independent contractor may be paid hourly rates or may be paid weekly, monthly, or by project. They must submit an invoice to receive payment.
Tax requirements: If they have earned more than $600 from you in a year, you report it using the 1099 Form. They initially provide their name, address, Taxpayer Identification Number, and certification about backup withholding on a W-9.
Withholding: You do not have to withhold anything from wages paid.
Now that you understand the distinction between these two types of workers, make sure you use the right word to describe the people who do work for you. Don’t refer to an independent contractor as an employee and vice versa. This helps avoid lots of confusion!
Who can help me with employment law issues in Ohio?
At DeWitt Law, we are uniquely positioned to help both business owners and employees with all sorts of employment law issues. If you would like to partner with us on your legal matter, we would love to talk with you! Give us a call.