Understand the difference between employees and independent contractors

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.