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Hire a Contractor or an Employee?

Independent contractors and employees are not the same, and it's important to understand the difference. Knowing this distinction will help you determine what your first hiring move will be and will affect how you withhold a variety of taxes and avoid costly legal consequences.

What’s the Difference?

An Independent Contractor:

  • Operates under a business name
  • Has his/her own employees
  • Maintains a separate business checking account
  • Advertises his/her business' services
  • Invoices for work completed
  • Has more than one client
  • Has own tools and sets own hours
  • Keeps business records

An Employee:

  • Performs duties dictated or controlled by others
  • Is given training for work to be done
  • Works for only one employer

Many small businesses rely on independent contractors for their staffing needs. Benefits to using contractors over hiring employees include:

  • Savings in labor costs
  • Reduced liability
  • Flexibility in hiring and firing
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