What's The Difference Between an Employee and a Contractor?
An employee works for your business, and you pay them payroll, and you pay payroll taxes on that money - about 10% employer payroll taxes on each employee.
If you pay an employee a thousand dollars a month, you'll pay an extra hundred dollars a month in employer payroll taxes.
You are also going to deduct the employee portion of the taxes from their paycheck, and you're going to have to pay that to the IRS, so you want to make sure your records are outstanding, so you know what to pay the IRS and any state agencies.
A contractor is someone you hire who is not an employee and generally does something different than what your company produces, especially in California with its new laws.
If you had a window-washing company and hired a window washer, you would want them to be employees. If you have a window washing company and hired someone to do marketing a few hours a week, that could be a contractor.
You are not going to direct their schedule, and you are not going to tell them how to do their job. They will come in as an outside service or an outside business and figure out what you need for marketing and then deliver it on a schedule you agree with, but you need to tell them what to do or when.
When you pay a contractor, you are not paying any taxes on top of what you pay them. If you spend a contractor a thousand dollars a month, you pay them a straight thousand dollars a month.
At the end of the year, you would give them a 1099 reporting precisely what you paid them for your tax records and their tax records.
Comments