Learn the basics about classifying a new worker as an employee or an independent contractor.
Deciding if you can hire someone as an employee or independent contractor is a big decision. It impacts taxes, what you need to do for payroll, and more. The government has a lot of rules around this, but here is a basic overview and some links that may help you.
Employee vs. independent contractor
An employee is a person hired by the employer. The employer generally has more control over an employee. An independent contractor is a self-employed person who provides services to businesses, generally on their terms. Use IRS guidelines to determine your worker classification.
Here are some helpful guidelines:
If your worker is an employee, you must:
- Withhold payroll taxes like income, Social Security taxes, and Medicare taxes.
- Match the employee's Social Security and Medicare taxes.
- Pay federal and state unemployment taxes on employee earnings.
- Issue a Form W-2 after the end of the year.
If your worker is an independent contractor:
- You shouldn't withhold any payroll taxes.
- You shouldn't pay federal and state unemployment taxes.
- You should send a form 1099-NEC or 1099-MISC after each year.