Thanks to technology-based jobs like ride-sharing, food delivery services and free-lance “work from home” opportunities”, there are perhaps more contract workers in the marketplace than ever before. Contract workers tend to have the ability to better control their own schedule and accept or decline jobs of their choice. But the difference between contract worker and an employer goes deeper than that. Technically, each is a job designation of the Internal Revenue Service, and many of the differences are in how income taxes are tracked and paid. Here is a closer look at contract workers vs employees.
Since they are not an employee, contract workers are not subject to have taxes withheld like FICA, State and Federal income taxes. On the other hand employees are subject to such deductions. Keep in mind, this does not mean contract workers are not subject to these taxes. It is just that they are responsible for ensuring they are paid as opposed to their employer.
A big advantage for independent contractors is the autonomy they hold in their work. While an employee serves more at the direction of his or her employer, a contractor has more options to choose projects, hours worked, etc. Some would say independent contractors are given an opportunity to work while employees are given a job.
Training & Benefits
While employees are frequently trained in the policies and procedures of their employers, independent contract workers are expected to already have certain competencies. As long as they perform to expectations, their position is usually secure. Employees generally will receive more benefits like healthcare, vacation time, etc. than contract workers.
How and Where Work is Performed
Many employees perform their duties at the place of business of the employer, using their tools and equipment. Independent contractors often perform work at a neutral site or their own home, using their own tools or equipment.
Independent contractors can be less cumbersome for employers, and since they are not responsible for taxes, less expensive. Employers, however, do lose some control over contract employees. From the worker standpoint, being an independent contractor offers more freedom and even the opportunity to perform work for multiple companies. Independent contractors can work as much or as little as they prefer and in many cases can even set their own hours.
Before deciding whether a worker should be an employee or contract worker, businesses should consult an accountant or lawyer to make sure they are in compliance with IRS guidelines.
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