EMPLOYEE VS. INDEPENDENT CONTRACTOR/CONSULTANT

THINGS FOR HELEN AND WALTER TO CONSIDER

Does the business have a right to direct or control the Financial Control and business aspects of the worker’s job? Consider:

Significant investment in the equipment the worker uses in working for someone else. THE TOWN HAS MADE A HUGH INVESTMENT IN THE EQUIPMENT TOMMIE USES. HE HAS MADE NO INVESTMENT IN THE EQUIPMENT HE USES TO DO HIS JOB.

• Unreimbursed expenses, independent contractors are more likely to incur unreimbursed expenses than employees. TOMMIE CAN BE REIMBUSRSED FOR HIS EXPENSES, MAYBE. CONSUMABLES SUCH AS PAPER HE  USES AND GASOLINE HE USES IF HE IS A CONSULTANT. HE HAS NEVER FILED FOR EXPENSES.

Opportunity for profit or loss is often an indicator of an independent contractor.  TOMMIE CAN’T MAKE A PROFIT OR LOSS FROM HIS WORK FOR THE TOWN. HE MAKES A SET SALARY PLUS EXPENSES.

Services available to the market. Independent contractors are generally free to seek out business opportunities. TOMMIE IS NOT FREE TO SEEK OUT OTHER EMPLOYMENT.

Method of payment. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time even when supplemented by a commission. However, independent contractors are most often paid for the job by a flat fee.  TOMMIE IS PAID A FLAT FEE, $25.00 an hour FOR 4 HOURS A WORK A DAY,  JUST LIKE HIS CONTRACT SAYS

:Relationship The type of relationship depends upon how the worker and business perceive their interaction with one another. This includes:
• Written contracts which describe the relationship the parties intend to create. Although a contract stating the worker is an employee or an independent contractor is not sufficient to determine the worker’s status. TOMMIE’S CONTRACT MAKES NO MENTION OF THE TERM “CONSULTANT”.
• Benefits. Businesses providing employee-type benefits, such as insurance, a pension plan, vacation pay or sick pay have employees. Businesses generally do not grant these benefits to independent contractors. TOMMIE DOESN’T RECEIVE BENEFITS THAT I KNOW OF. IF HE DOES HE IS AN EMPLOYEE NOT A CONSULTANT.

The permanency of the relationship is important. An expectation that the relationship will continue indefinitely, rather than for a specific project or period, is generally seen as evidence that the intent was to create an employer-employee relationship. TOMMIE HAS A 6  MONTH CONTRACT, NO PERMANENCY.

• Services provided which are a key activity of the business. The extent to which services performed by the worker are seen as a key aspect of the regular business of the company. THE TOWN CAN’T OPERATE WITHOUT A TOWN MANAGER, HE IS CRITICAL TO THE REGULAR BUSINESS OF THE TOWN.

Classifying an employee as an independent contractor with no reasonable basis for doing so makes employers liable for employment taxes.  TOMMIE DOESN’T PAY TAXES. IF ANY TAXES ARE BEING PAID (DOUBTFUL) THEY ARE TO BE PAID BY TOMMIE’S EMPLOYER COUNTY LINE DESIGN BUSINESS SERVICES)

Description of common questions

Employment Laws

Employee – Employment Laws Covered by a number of federal and state employment and labor laws

Contractor – Not covered by employment and labor laws

Hiring Practice

Employee – A potential employee completes an application that is handled by Human Resources. The approved applicant receives a job offer. After a person accepts the position, the employer must ask for additional information about the employee such as date of birth, marital status, and citizenship status.

Contractor – A potential contractor normally interacts with the person or department that wants a certain service or task completed. A potential contractor might complete a proposal. The contractor enters into a contract, including a Statement of Work with the legal or procurement section of the business.-

Tax Documents

Employee – Provides name, address, Social Security number, tax filing status, and number of exemptions on a W-4

Contractor – Provides name, address, Taxpayer Identification Number, and certification about back up withholding on a W-9

Payer’s Tax Reporting Requirements

Employee – Reports all money paid to the employee during the tax year on a W-2

Contractor – Reports payments of $600 or more in a calendar year on a Form 1099

Reporting to Other Agencies

Employee – Reports for state and federal Unemployment Insurance

Contractor – None

Value of Work or Contract

Employee – Earns either an hourly rate or a salary

Contractor – A contract may be for a total amount. It could be for an hourly, daily, or weekly amount that ends on a specific date or a total amount to be paid when the job is completed.

When Paid

Employee – An employee pay period must remain the same unless formally changed. Pay periods vary from one week to one month. Federal and state laws require that an employee be paid on the normal pay date or earlier if the pay check is not negotiable on the normal pay date, which can occur on holidays.

Contractor – Accounts Payable pays a contractor after receiving an invoice. The terms of the contract or Statement of Work dictate when payments are made, such as upon completion of a task or by periodic amounts. Contractors are not paid by payroll staff in most businesses.

DEFINITION OF A CONSULTANT: Provides advice to companies to solve problems, create value, improve growth, and maximize business efficiency and profitability. Acts as a liaison between management and support staff to help employees understand how their job performance affects the company’s operations. TOMMIE DOESN’T GIVE ADVICE LIKE MEAGAN, OR MR.WHITEHEAD OR THE SEWER AND WATER GUY, MR. DAVIS. HE RUNS THE SHOW. THE MAJOR DIFFERENCE BETWEEN AN EMPLOYEE, LIKE PAM OR RAY VAUGAN, VALUABLE EMPLOYEES BUT THEY DON’T RUN THE WHOLE SHOW. STACY WAS SUCH AN EXAMPLE, RAN THE WHOLE SHOW

WHICH IS HE? AN EMPLOYEE OR A CONSULTANT? YOU DECIDE. SIMPLY BECAUSE MEAGAN SAYS HE IS A CONSULTANT DOESN’T MAKE HIM ONE. IRS REGULATIONS WHICH WILL COME INTO PLAY SHORTLY PREVIAL AND ARE IRON CLAD. THE TOWN, IF IT KEEPS UP WITH THIS CHARDE, WILL MEET THE TAX MAN SHORTLY.

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