Employee or Contractor? How to Tell the Difference
One of the biggest distinctions between employees and independent contractors is how payroll taxes are handled. Employees have payroll taxes deducted directly from each paycheck, while contractors are responsible for reporting and paying their own taxes.
So how can you confidently determine whether someone working for you is an employee or a contractor? Here’s a simple breakdown.
Questions to ask when classifying a worker
The easiest way to figure out if someone should be treated as an employee or a 1099 contractor is to ask yourself:
- Do I control when, how, and what this person works on?
- Does my company provide the tools or supplies they use for the job?
- Do we reimburse them for business expenses or items they purchase for work?
- Do they receive benefits similar to employees (such as paid time off, sick leave, or health insurance)?
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If you answered yes to any of these questions, chances are the worker should be classified as an employee, not a contractor.
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