Know the differences between an Employee or Independent Consultant/Contractor. An expensive business mistake is to treat an employee as a contractor to save money on insurance and taxes. This mistake will cause you to pay hefty penalties, back taxes and fines by the Department of Labor, Internal Revenue, and State Agencies. A contractor or independent consultant is a business owner.
What is a Contractor or Independent Consultant?
An Independent Consultant or Contractor is a business owner and can set their own prices and fees. The job is performed according to the client request however this person will purchase the tools and supplies to meet the job. The consultant will invoice the client for fees and reimbursement of supply/tool purchases. The consultant can also work for other clients and companies. This person is responsible for their own training and continuing education. The contractor or IC creates his/her own schedule and will work according to how their business allows them to work. Business owners hiring the IC or Contractor will need to require a W-9 and submit 1099 for wages paid in order to claim a deduction for wages paid.
Here’s an article and tips form the IRS about what how to classify IC’s and Employees http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee
What is An employee?
This person receives directions for the employer and must perform the job according to the written guideline or plan determined by the employer. The employee can not work for other clients or companies and are on a set work schedule. You provide all of the tools and supplies. Yes, you submit and match taxes, deduct benefits and garnishments, and report and carry insurance and workman comp. You provide training to the employee.
The employee is there to support your dream. Usually, an employee is hired to handle various duties inside of a business according to the business policies and procedures. People benefit from being your employee. Employee’s benefit from working for an employee because
- Everyone is not made to be a Entrepreneur and work better as Employees.
- Employees can also receive assistance with benefits – Most people can not afford their own health, medical insurance but they can with the assistance of a generous employer.
- Employees are eligible for Earned Income Credit when they have reported income.
- Employees are eligible for Social Security Taxes
The Purpose of Employment Taxes:
Employers are only responsible to match Medicare and Social Security Taxes (FICA) – These taxes are withheld to support Medicaid programs for the less fortunate and the Social Security benefits for us when we retire. Employees receive Social Security Benefits when they work for an employer. A business owner can receive Social Security Benefits as well. Have your Accountant assist you with setting up your tax accounts.
The expenses you pay for Insurance and Taxes are deductible and will save YOU the business owner money as well.
Think long and hard before you decide to treat an employee as a Consultant or IC. IC or Consultants are meant for outsourcing or someone one that can offer benefit through consultation or hands on work to help employees. If you can not afford taxes, benefits and insurance perhaps you are not ready for an employee. You may be ready to outsource and can hire a business owner however they have expenses as well and this will be reflected in the fee. The value of the benefit of having help should out way the cost of having an employee or contractor but follow the regulations.
Would you like to have help but are not ready to take on employees. Contact B&P Accounting Solutions, Corp. to help you with payroll and human resources process. However if you need actual employees in your business.. Our sister corporation, Coard Care Assistants, can will send out our employees to help you in your business. You get the helping hands without the worry. Schedule a consultation today!
B&P Accounting Solutions, Corp.
Phone: 919-249-5156 ; Fax: 919-249-5156
She is the owner and operator of B&P Accounting Solutions, Corp.
Y. Michelle helps business owners to create and find money and fix any money leaks in their business. She also simplifies the accounting process and dare I say “make it enjoyable”
Business and Accounting Solutions is your one-stop-shop to financial awareness financial growth serving your monthly bookkeeping, cash flow, profit growth strategy and annual tax needs.