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What is the difference between an employee and a contractor?

Whether you are just starting your own business or you are preparing to make some staffing changes, it is a good idea to evaluate the best type of worker to hire. According to the Small Business Administration, one primary factor is whether you will hire employees or independent contractors. When determining who will be performing job duties for you, considerations such as liability, taxes and control are affected by this decision.

An employee is entitled to many benefits that contractors are not. For example, an employee must be covered by workers’ compensation benefits, and you must take care of the withholdings for unemployment, Social Security and state and federal income taxes. You are responsible to train your employees, but you also have more control over their actions. These may be critical factors, depending on the duties you want performed and issues such as confidentiality.

A contractor may work for many clients, but your liability is not as great and you have the potential to shrink your labor budget. This is because contractors are responsible for their own health insurance, and they have to take care of their own taxes. Independent contractors also take care of their own business records and have their own checking accounts. They may even have their own employees performing the services that you require, and you would not be responsible for their training or compensation, either.

This information is provided to help you gain a better understanding of your staffing options. However, it should not be interpreted as legal advice.

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