Knowing how to tell the difference between issuing a W-2 form and a 1099-MISC form can be a little confusing, especially if you are part of a company that deals with many different types of workers. However, knowing which worker is an employee and which one is a contractor is important for your business so that you know which form to send in for each. There are a few differences between an employee and a contractor; all of which will make it easier on you to understand the tax filing process.
The Type of Work Issued
An employee will work under one boss and will do his or her job based on the duties they are expected to perform. The employee’s boss will provide on-the-job training, as well as dictate what the employee’s responsibilities are. The contractor works independently from the company and will usually have many clients or employers at once. A contractor can move from company to company when needed and sets his or her own work hours. Contractors can be hired to do extra side work for a business without receiving the benefits given to an employee, such as health benefits or time off. A contractor can also be considered his or her own boss, which means they follow their own guidelines and do not take direction from the company that hired them unless stated otherwise.
Whether an employee is working for a company full time or part time, they are putting in ongoing service to a business with set hours and hourly pay or annual income. A contractor provides service for a definite amount of time, after which their services to the company are done. They can come back to the same company for more work, but it is considered a new service contract and not a continuing one. Contractors will be paid either all at once or on commission, unlike most employees.
An employee will have no independence from the company, which means that they are responsible for all of their actions. An employee’s actions and attitude will reflect back onto the business, so it is important that they act the way the company wishes to be seen by others. A contractor is completely independent from the company they are working for, which means they are not responsible for any actions beyond the service they have provided. However, that does not mean that they can treat the company that hired them badly; the quality of their work will reflect the company’s image.
It is common for a company to reimburse an employee for any business related expenses. These expenses usually include travel expenses like food, lodging, and transportation, among other things. Business expenses can be reimbursed for the company, which can end up benefitting them. As long as business expenses stay within the IRS guidelines, a company can reimburse the employer or employees for any expenses made and collect the deductible. A contractor is not working under the company, however, so he or she must pay their own fees.
Using these differences can help a company figure out which form to fill out for their employee and contractor. Once they are ready to file the forms, they can go to Wage Filing’s website for a systematic process.