Importance of knowing the Distinctions between Employees and Independent Contractors
The fundamental difference between an employee and an independent contractor lie in the roles and responsibilities they play in an organization. An employee is one employed for wages or salary and is usually taxed on their income. The employer usually manages employee tax and work schedules they work for. On the other hand, independent contractors provide goods or services to a company or business under a written contract or a verbal agreement. For the independent contractor, the organization they work for does not withhold taxes from the amount paid to them. They are independent of the organizational typical rules and regulation and are paid based on the project or work assigned to them, which is mostly on an hourly basis. Businesses must know the difference between employees and independent contractors when operating a business. This is because it will help them understand how to pay them as well as know how they pay taxes.
Key Factors for Determining Joan’s Employee Classification
The key factors that need to be considered in determining how to classify a worker include behavioral control, financial control, and the type of relationship between the parties (IRS, 2019). With behavioral control, employees are usually directed and controlled by their employers while independent contractors are independent from organization typical rules and regulations. With financial control, employees are paid salary or wages, whereas independent contractors are often paid for the services they provide or job done by a flat fee. With relationships, employees are usually granted employee-type benefits, such as insurance and vacation or sick pay, while independent contractors are not given these benefits.
Delegate your assignment to our experts and they will do the rest.
In the case provided, Joan is hired as an independent contractor, and therefore, she is independent of the organizational typical rules and regulations. Joan is also paid weekly and works on the commission basis. She makes an independent choice of using available and unused offices space to increase her availability to the clients and the contracting firm. The arrangement does not make the company liable to consider Joan as their employee. Based on this factors, Joan is an independent contractor and not an employee.
Was Joan’s Designation as an Independent Contractor Correct?
Yes. Joan’s designation as an independent contractor was correct. Based on the key factors used to classify workers, Joan qualifies as an independent contractor and not as an employee. This is because she is paid weekly as well as a paid commission by the contracting firm and the clients respectively. She is also liable for her own taxes. The U.S. Internal Revenue Service (IRS) distinguish the status of workers based on behavioral control, financial control, and type of relationship, which are regarded as the common law rules in differentiating employees and independent contractors (IRS, 2019). If a business is unable to classify a worker using these three key factors, the business is required to file Form SS-8 with the IRS. Form SS-8 is a form used to determine the status of a worker for purposes of federal employment taxes and income tax withholding (IRS, 2019).
According to IRS (2019), independent contractors are independent individuals who run their own business but work for other company while employees are individuals hired by an organization and work under the direction of the organization. The bureau also states that companies must withhold their employees' income taxes and Medicare taxes. However, the businesses do not have to withhold or pay any taxes on payments to independent contractors. Based on the definition and regulations provided by the IRS, Joan is an independent contractor.
References
IRS. (2019). Understanding employee vs. contractor designation. [Online]. Retrieved from: https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation . Accessed 1 st August 2019.
