Employee vs. Contractor

If you’re looking to hire your first team member and you’re trying to decide whether to pay them as an employee or pay them as a contractor, it’s important that you understand, it’s not up to you. There are specific characteristics that determine whether or not you can pay a team member as a contractor or if you need to pay them as an employee.

 Characteristics of Contractors:

• Provides services to others, does not exclusively work for you.
  • If you’re hiring someone to work only for you, they likely need to be classified as an employee.
• Controls where, when, and how the work gets done.
  • If you are requiring someone to be at work at a specific time, telling them how to get the work done, and dictating that they work in your office, they are an employee.
• Completes short-term or one-off projects.
  • If you’re hiring someone to work a “permanent” position, they are likely an employee.
• Provides their own tools and equipment to get job done.
  • If you’re providing the computer, the truck, the tools, or the equipment needed to complete the project, you’ve hired an employee.

 Setting up payroll can add complexities to your business that make it appealing to pay team members as contractors. The person you want to hire may even want to be paid as a contractor. However, choosing to disregard the rules can result in significant penalties and even potential criminal charges. It’s not up to you to choose how to pay your team, the Department of Labor and the IRS have decided for you.