Employee vs Independent Contractor

Many small business owners try to call employees independent contractors in order to save money on payroll taxes and workers comp. It is not an option, it’s not up to you. The IRS has clear rules about this and they are surprisingly clear for government rules.

True Independent Contractors

The best example of a true independent contractor would be a plumber hired by a contractor to do plumbing. The plumber has his own tools, works on his own schedule, is already trained, is at risk of losing money on the job (if his estimate was wrong), etc. Yes, there may be limits to when he can work (not in the middle of the night) and a deadline (it’s all got to be done by the 10th of next month), but he is his own business and in no way an employee.

If you hire me to do your bookkeeping, I already know how to do it and I will be doing it on my schedule (not going to your business at specific hours under your control), so I would be an independent contractor.

True Employee

It’s easy to understand what an employee is, we hire them, train them, supervise them, provide tools, and they’re guaranteed to not lose money (they get paid by the hour).

Here’s the IRS’s guidance on deciding between the two. If you still aren’t sure, ask me and I’ll tell you my non-lawyer opinion.