Why Employee vs. Independent Contractor Classification Matters [Infographic]

Matt Zajechowski http://www.wunderlandgroup.com 3m 741

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Classification: Employee vs. Independent Contractor

Employee Independent Contractor

Employee classification matters for both businesses owners and employees although some may overlook it. Businesses can face issues with the IRS for improper employee classification and employees may be getting the short end of the employment stick if they are improperly classified in terms of both pay and benefits. Wunderland has created a visual guide that provides useful information for both business owners and job seekers about the differences between being classified as an independent contractor vs being classified as an employee.

Hiring full-time staff or freelancers, you should know how to classify your employees in order to not get stuck paying penalties or fees to the IRS at a later date. Conversely, if you are offered a job but the company insists on paying you as an Independent Contractor, you might be getting the short end of the employment stick. This infographic highlights information that you need to know whether you are the one hiring workers, or you are being hired.

Why Employee vs. Independent Contractor Classification Matters [Infographic]

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What’s in a Name?

The Risk and Rewards of Independent Contractor vs Employee

Job Classification

What’s the difference between an Independent Contractor (IE) and an Employee?

* The information provided is not legal advice; please consult an attorney for guidance on employment laws.

Independent Contractor | Employee

Self Employer Company
Per-project Duration Long-term, integral part of business
Multiple companies or individuals Source of Income Primarily one company
Their own Tools and Resources Company provides
Does not receive Training Company provides
Does not receive supervision or work hours and requirements Supervision and Requirements Adheres to company policies and requirements
Self-promotion Marketing Company is responsible
Signed W-9 required IRS Forms Signed W-2 required
Per-project Compensation Hourly or on a salary, company withholds taxes
Self, including filing tax return Tax Responsibility Not responsible for filing a business tax return
Not Eligible Benefits Eligible

What to Know About Job Misclassification

Employer | Worker

Employers may misclassify workers because:

  • They may think classifying a full-time employee as a contractor saves them time and eliminates the need to give them benefits and pay employer taxes.
Workers may take a misclassified job because:

  • They need a job and like the role and company.
  • They don’t realize it is misclassified.

Risks of Improper Job Classification

You could get into IRS trouble. How?

  1. An IC with a job that is misclassified could make an anonymous report to the IRS.
  2. You must report paying an IC more than $600 in a calendar year, via a 1099 form for the IRS, thus triggering their attention, which could result in an audit with financial penalty or worse.
You could be deprived of fair compensation and benefits. How?

  1. If you are an employee based on legal criteria and your employer classifies you as an IC, you won’t be entitled to any company benefits (health insurance, paid days off, 401k, etc.).
  2. You will not be entitled to overtime pay if you work more than 40 hours a week.
  3. Even though you may be sitting next to one of their employees with the same responsibilities, you may be treated differently.
  4. You will be responsible for paying all your taxes – the money an employer normally withholds from your paycheck and may owe a large tax bill.
  5. The company could think they found a way to save money, at your expense.

Protect Yourself at Work

  1. Work with a staffing firm so workers become employees of the staffing firm, thus freeing the business from possible IRS audit for misclassification.
  2. Consult with an attorney to make sure they are in compliance.
  3. Classify your staff correctly to ensure your workers are fairly compensated and committed to a sound company for a promising career.
  1. Be aware of the IRS rules so your company doesn’t think they found a way to save money, at your expense.
  2. If you agree to be classified as an IC and you’re not, you can make an anonymous report to the IRS, which may make you entitled to compensation for benefits and employer taxes you paid on your own.
  3. Don’t take a misclassified job, even if you need one, because the company may be taking advantage of you.
  4. NOTE: You will not get into trouble if the business misclassifies you, but you will suffer financial consequences in terms of missed benefits and having to pay your own employer taxes.

Presented by: Wunderland

Original Source: http://www.wunderlandgroup.com/why-employee-vs-independent-contractor-classification-matters-infographic