The difference between employee vs. contractor, and why it matters to your client’s business
How your commercial clients classify their workers – as an employee vs. contractor – is a concern for your business owners AND their workers. These decisions affect not only their experience mods and therefore their work comp premiums, but they also affect workers’ federal income tax, under Internal Revenue Code Section 1 and Section 61.
When it comes time to pay taxes, how your workers are classified may mean a great deal to them. They may find themselves getting the short end of the stick if they’re improperly classified, in their pay, taxes owed and in benefits.
Most businesses have a combination of employees and independent contractors – those they may bring in on a temporary basis at peak traffic times and then let go, or those who consult sporadically, and so forth. These are typically classified as independent contractors who receive 1099 forms rather than W2s at year-end. Employees can also be hired and let go on a seasonal basis, depending on the type of business, but typically are kept on for the duration.
The infographic below, Why Employee vs. Independent Contractor Classification Matters, sums up the important differences between an independent contractor and an employee. This infographic, provided by Wunderland via Work Awesome, also provides advice both to the worker and the employer.