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Employee vs Independent Contractor

should you hire or should you outsource?

Have you reached a point in your business where it’s time to hire someone? If so, have you taken the time to think about hiring an employee verses hiring an independent contractor? It may be a question you want to consider. While there may not be much different about them in the workplace, the legal and tax aspects for them are very different.

Let’s discuss the difference between the two.

An Independent Contractor is considered self-employed and not an actual employee of yours. They can do work for other businesses as well as yours.  They will also invoice you for the work they complete and will choose their own hours as well as provide their own tools/materials.

An Employee performs the duties that are required by the employer, works only for that one employer and has set hours.

One reason small businesses choose independent contractors over employees is because it saves them money. How you ask? Well, when using contractors, you don’t have to worry about labor costs such as health and disability insurances. You also don’t have the cost to process payroll, not to mention having to pay the employer’s portion of taxes such as Social Security, Medicare and unemployment.

So it may be beneficial for you to hire an independent contractor versus an employee. However, if you misclassify an employee as an independent contractor, there are consequences such as:

  • Reimbursing them for wages you should’ve paid them under the Fair Labor Standards Act, including overtime and minimum wage
  • Paying back taxes and penalties for unpaid Social Security, Medicare and unemployment taxes
  • Paying any misclassified injured employees workers’ compensation benefits
  • Providing employee benefits, including health insurance, retirement, etc.

In the end, you must decide which is best for your company. I hope this article will be helpful when the time comes to make the big decision on hiring! If you ever have any questions about this topic, don’t hesitate to ask me!

A Mazzo Accounting provides a variety of tax and accounting services to individuals and businesses in the Wyomissing, Reading, West Reading, Sinking Spring and Kenhorst areas, as well as towns and villages around the Greater Reading area. Our services for small to mid-size businesses include taxes, payroll services, accounting services, and bookkeeping services. We also provide a variety of services for individuals and they include tax return preparation as well as some accounting assistance.

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