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Difference Between An Employee And An Independent Contractor

When it comes down to a company appointing someone to perform a particular task, the best two options are usually either an Employee – Someone who is employed by a company to provide services against a fixed monthly salary or an Independent Contractor – A self-employed individual who is assigned for a particular job based on definite fees or a signed contract which mentions how much the assigner shall pay the assignee for the task if and when they complete it in the discussed period of time.

Employee Vs Independent Contractor

Here is a List of Comparisons to convey the differences between the two based on a certain set of points which in turn might help in making the choice slightly easier.

The first point is the Payment – Now while an Employee is paid on a monthly basis a stipend/ salary at the same time an Independent Contractor would be paid a definite amount of money which is mostly discussed at the beginning of when they are appointed for the assignment.

The next point is the Nature of Work – Where an employee is told what is the assigned task for the day by their employer at the same time an Independent Contractor is allowed to make those decisions for themself.

An employee is allowed to Work For only one employer at one particular point in time but an Independent contractor has the right to work for multiple clients at one particular point in time.

A Contractor usually does not receive any Training as such by their contractees whereas an Employee is made to go through a various set of training with regards to how they have to perform their tasks, that they are employed for, in a specific manner.

An employee is required to solely perform each task that they are Delegated to by their employer whereas an Independent Contractor can allot the tasks to his/her team members.

When it comes to the Independence of both, an Independent Contractor gets to live up to their title and work independently but on the other hand, an employee has no other option but to follow the directions of his/her employer and work under their control.

The relationship between an employee and an employer is continuous depending on the time span of the employment. And with an Independent Contractor, the relationship is mostly temporary.       

Different Tax Forms (W-2 & 1099-NEC) For Employee And Independent Contractor

Another easy way to differentiate between an employee and an Independent Contractor is to find out how they pay their taxes.

Where an employee is given the leverage of not having to pay federal and state income taxes as they are paid via salary or hourly on the basis of commission. Thus employees receive a Form W-2 which taxes them on their income and also shows an employees’ annual earnings.

An Independent Contractor as of from the year 2020 is to be sent a Form 1099 NEC if they are paid $600 or more during the year and you also do not have to be the one paying up when it comes to FICA Taxes and Federal or State Income Taxes. Even Social Security/Medicare taxes are to be paid by the Independent Contractor in the form of Self-Employment Taxes against the payment they receive from the company.

How To Report Form 1099-NEC/W-2 to the IRS?

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