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Employee vs. Independent Contractor

There are two (2) classes of employment; employees and independent contractors.

Employees

An employee, or “W-2 employee” in the USA, is an individual who performs a service on an employer’s behalf in exchange for payment, commonly hourly pay. The employer can control what services to complete and how it will be done. Also, the employer can control, in most cases, where the employee performs the services.

  • IRS Form W-2 – Required to be completed by the employee and given to the employer prior to employment.

Independent Contractors

An independent contractor, or “1099 contractor” in the USA, is an individual who performs a task for an employer in exchange for payment, commonly a fixed price. The employer cannot control how the task will be completed but only the result of the work. The employer also cannot control, in most cases, where the employee performs the services unless the work is at a specific location.

  • IRS Form W-9 – Required to be completed by the independent contractor and given to the employer prior to employment.

Employee vs Independent Contractor

Each State determines ultimately determines its definition of an employee. Although, most States rely on the IRS 20-Point Test to determine if an individual is an employee. The table below is an overview of the two (2) classes of employment:

Employer: Employee Independent Contractor
Pays Withholding Taxes (social security, medicare, unemployment, etc.) X
Provides Health Insurance X
Provides 401(k) Matching X
Provides PTO (Paid Time Off for vacation, sick leave, etc.) X
Provides Overtime Pay X
Controls How Work is Performed X
Controls Where Work is Performed X
Controls When Work is Performed X
Controls Results of Work
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