Payroll & Independent Contractors

There are 2 labor types that could perform work for your company. It’s important to know the difference to be sure you are fulfilling any legal obligations you owe to employees, such as wages or other benefits, and are paying the appropriate taxes.

• Employee: The IRS defines an employee as such, “Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done.”  
  • IRS Form W-2 – If you worked as an employee during the year, you will receive a W-2 stating the wages you made and any taxes withheld. Employers are required to file and send these out no later than January 31st so employees can receive them and file their taxes in a timely manner.
• Independent Contractor: An independent contractor is a self-employed person or entity contracted to perform work for—or provide services to—another entity as a nonemployee (Visit Investopedia for further information defining an independent contractor).
  • IRS Form 1099-NEC – If you pay a non-employee more than $600 in year, you would file a 1099-NEC, due by January 31st, showing the total amount you paid them that year.
• The ABC test is used to determine if a worker is 1099 Contractor
  • An individual performing any service shall be considered an independent contractor if—
    • the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact;
    • the service is performed outside the usual course of the business of the employer; and
    • the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.