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Understand the difference between employees and independent contractors

by Intuit Updated 2 months ago

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.

Set up your workers

How to set up contractors and track them for 1099s in QuickBooks.

Add your new employee to QuickBooks Payroll.

QuickBooks Online Payroll CoreQuickBooks Online Payroll EliteQuickBooks Online Payroll PremiumQuickBooks Payroll AssistedQuickBooks Payroll BasicQuickBooks Payroll EnhancedQuickBooks Payroll Standard

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