The Difference Between Employee and Contractor
Tax provision: Employee or contractor?
If you are engaged with a company you will either receive a W-2 form or a 1099 depending whether you are an employee of the company or a contractor. You should take notice of this because the tax you pay as an employee or as a contractor are different. If you are an employee, your employer pays a percentage of your tax. But as a contractor, you will have to foot the bill totally by yourself. Be aware that some business misclassifies employees as contractors to escape the tax burden. This is crucial factor to take into account when making your tax preparations.
The term ETC (Exclusivity, Tools and Control) can help you determine your position.
Knowing the difference will permit you to contact your employer if you have been misclassified, to point out the problem. If you fail to get cooperation, contact the IRS to report the misclassification as they will be able to cure the situation.
Here are some tips to help you discriminate whether you are an employee or an independent contractor.
1. Do you wok solely for one company?
If you have been working for only one employer, then there is a higher chance that you are truly an employee instead of an independent contractor. If your work load is eight hours a day or more, then all the more you should be registered as an employee instead of an independent contractor!
Who exercise control over what you do? An employee executes the orders of the employer in return for the wages paid. If your employer controls how you should be doing your job, when you should do it and how it should be done, then you are an employee and not an independent contractor!
Do you receive payments according to the projects you do on a monthly basis? If you are paid on a monthly basis then you are indeed and employee and not an independent contractor! If you are an independent contractor you will receive payment only when projects stated to you are completed and not according to the duration for time you work.
Employers tend to prefer classifying employees as independent contractors since it gives them a lot of advantage when it comes to tax issues. For you it becomes a disfavor that you would want to avoid. If you are an employee, you desire all rights to be treated as such and that includes classification as an employee peculiarly when it comes to in the tax preparation issues. Misclassification of employees as contractors is a serious affair and laws exist to assist those that may be affected.