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PAYROLL, EMPLOYEES & INDEPENDENT CONTRACTORS
What Is the Difference between Wages, Payroll and Fees?
An employee is someone you hire to perform specific and regular functions in your business. An employee can be paid by the hour, by a percent of sales, with commissions or on a salary. Wages refers to the compensation given to an employee regardless of how structured. Wages can be paid weekly, biweekly, monthly or even annually.
Fees are paid to Independent Contractors who are contracted to provide a specific service. These are sometimes referred to as Outside Services. The service can be a one-time service, or an ongoing function
What Is the Difference between an Employee and an Independent Contractor?
An employer has obligations and duties regarding an employee he hires. An employee is hired to perform a specific job, is told how to perform it and when to perform it. In exchange the employee is paid wages. If the employee cannot fulfill the job requirements, the employer has the right to fire the employee and fill the position with someone more qualified.
An Independent Contractor works for himself and for a profit. An agreement is entered into between the contractor and a customer or client for a specific job or function. It may or may not be on an ongoing basis. The Independent is not told how to perform the service or when to perform the service.
Do I Have To Withhold Taxes from Wages and Fees?
If you have hired an employee there are specific amounts that must be withheld and forwarded to government agencies. You do not have to withhold amounts from an independent contractor unless that contractor fails to provide you with a Social Security number. An employee must fill out form W4 and an independent Contractor must fill out form W9.
Are There Penalties If I Do Not Withhold Amounts From My Employees
Paychecks And Send it To The IRS?
Yes, very stiff penalties from both the Federal and State governments.
The IRS can assess a 100% penalty on the amount of payroll taxes that should have been paid, plus interest.
How do I determine if The Person I Hire is an Independent Contractor
or Employee?
It is vital that you know the difference between an employee and an independent contractor. Take the Independent Contractor Test below to determine if the person is an employee or can be paid as an Independent contractor.
