Employee vs 1099: How can you tell the difference?
Understanding the specific classifications of employee vs 1099 (an independent contractor) is very important. Before we offer you advice on how to be able to classify them accurately for tax and legal purposes, let’s understand the connection between independent contractors and ‘1099’!
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Employee vs 1099
Many businesses work with contractors. The reasons for hiring a contractor versus an employee for the same work are many. Perhaps, a business hasn’t been able to find a full-time employee and needs to work with a contractor. Contractors also save companies a lot of money on taxes and benefit payments, so that’s another reason. Contractors are responsible for payment of their own taxes. However, the employer has to provide him with a 1099 form. For most businesses the numbers ‘1099’ have come to mean a contractor. So employee vs 1099, essentially means an employee vs an independent contractor.
It important to ensure that you have figured out the difference between an employee and an independent contractor (i.e. employee vs 1099)? More often than not, it is easy to tell the difference between a full-time employee committed to your business. But sometimes, it’s hard to tell. The best thing to do is use common law guidelines, which is exactly what the IRS does. The easy way to tell an employee vs 1099 is to see how much control you’re exerting over the individual. Are you able to tell exactly how many hours the person should work? Do you have complete control over the resources that the individual can use to perform his job? This is called behavior and financial control. An independent contractor sets his own hours and runs a business of his own with other clients. If that’s the case, perhaps its best to classify the individual as an independent contractor.
Importance of accurate classification – employee vs 1099
If you own a small business, you might be tempted to classify employees as contractors to save on taxes and offering other benefits. This is common when business owners are trying to figure out the advantages of employees vs 1099. But do remember that the IRS scrutinizes this very carefully. If it finds that you have intentionally tried to classify an employee as a contractor, you’ll be liable for huge penalties, taxes and interest. The last thing you need as a small business owner is getting an unexpected bill. It is better to find contractors for a job if that’s what you want do, than pass of hardworking, full-time employees as independent contractors!