Employee or Contractor? Which are you?

An emerging hiring trend in our rapidly-changing workplace is self-classification for new hires. In some cases, you’ll be asked to decide whether you want to perform your new job as an employee or as an independent contractor.

Both classifications have the advantages and disadvantages. Let’s take a look at some of the key differences between the two classifications. You’ll be better prepared if your new employer presents you with the choice to be an employee or contractor.

Taxes

In a nutshell, if you sign a W4 form as part of your onboarding process, you are classified as an employee. Your employer will be responsible for deducting all applicable taxes from your paycheck. You’ll receive a W2 at the end of the year.

As an independent contractor, you are responsible for paying your own taxes. In some cases, you may need to file quarterly, or provide a Schedule C attachment with your tax return each year.

Hours/schedule

If your employer determines your work hours and schedule, they are classified as an employer and you as an employee.

Independent contractors are responsible for setting their own schedule and hours with no input from your client.

Equipment/workspace

You are classified as an employee if your employer provides the equipment necessary for you to perform your job duties. They will also provide the workspace, and you’re required to use that workspace and equipment.

As an independent contractor, you’ll have the option of providing your own equipment/tools, and you can perform your work wherever you choose.

Regulations

When you take on a new job as an employee, your employer must adhere to all laws regarding workplace safety, meal breaks, time off, EEOC practices and other state and federal workplace mandates.

However, as an independent contractor, you’ll have no such protection.

Depending on the nature of their business, employers will prefer independent contractors over employees for the simple reasons of not having to pay unemployment taxes, social security/Medicare, and benefits.

According to the U.S. Labor Department, 1 in 10 workers was in an independent contractor in 2018.

Deciding whether or not to accept an employee or independent contractor role will depend on many factors: your lifestyle, location, line of work, risk tolerance, and financial status.

While the current workplace holds few guarantees for anyone, employees do have the advantage of having access to benefits, legal protection, and fixed scheduling.

Independent contractors will be on the hook for their taxes, expenses, equipment, and travel costs.

Weighing a new job offer is stressful enough without the added confusion of having to determine your employment classification in some cases. It’s always a good bet to discuss the possible tax implications with a licensed tax professional.

Taking on a new job has plenty of headaches: a new commute, new colleagues, new routines, new leadership, and of course new workplace cliques.

Don’t be caught by surprise at tax time. Decide carefully which classification will work best for you, and move forward into your new role armed with the confidence that comes with fully understanding your new classification and it’s long-term implications.