Contractors vs Employees
Contractor VS Employee
A common-law employee is anyone who performs services for you and if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed. An employee is told what to do, how to do it. Payment is determined by the employer and tools and supplies are also provided by the company.
A statutory employee is an independent contractor that may have to be treated as en employee for certain employment tax purposes. Social Security and Medicare taxes are the responsibility of company if the following conditions apply:
- The service contract states or implies that substantially all the services are to be performed personally by them.
- They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in transportation facilities).
- The services are performed on a continuing basis for the same payer.
A statutory non-employee can be one of two types, direct sellers and licensed real estate agents. They are treated as self-employed for all Federal tax purposes, including income and employment taxes, if substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked, and their services are performed under a written contract providing that they will not be treated as employees for Federal tax purposes.
An independent contractor depends on the specific situations of each case. People such as lawyers, contractors, subcontractors and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees.
The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. The contractor would also own the tools and equipment that he uses in his activities.
