For a big business, the employees and independent contractors are both valuable assets. Both hired by the business house to complete or produce the desired result in a specific time. But when it comes to taxes, we think it is also a simple process that can be done without any errors. Because both are working for the company, and we can complete their taxes. But things a lot hazier and complicated than it seems.
Have you heard or read about the case of Uber in the US? The case is a real example of misclassifying employees and contractors. The business giant Uber denied to accept that their car drivers are employees; they used to consider them as an independent contractor. And this also led to the penalty of approx. 100 million dollars.
If you are also confused between your contractors and employees, then we have the perfect reading for you to make your all doubts clear-
Classification of employees and an independent contractor
Employees are those people who get regular wages, receive all employees benefits at the company, have tax deduction from their salaries, and last but not least, they work according to the schedule, which is decided by the employer. On the other hand, these workers have more protection and benefits in comparison to an independent contractor. They get workers compensation, severance, and anti-discrimination protection from the business. And lastly, they have to pay their taxes from their payrolls.
On the other hand, an independent contractor at the firm only receives the payment for their individual projects. They are solely responsible for their taxes and free to work for any business houses or firm. And in terms of the tax criteria, they considered self-employed by the internal revenue service officer (IRS). It means they need to worry about their tax payment on their own.
However, the degree of control can also be an excellent point that can help you understand the difference. If the employer has all the commands and power towards the worker, it means he/she is the employee.
Classification on a taxation purpose
If you are a regular employee at the company, then your company will withhold and pay your Medicare taxes, social security taxes. They also withhold employment taxes and unemployment taxes from your salary and pay to ATO on behalf of yours. They also do the special paper works to IRS on your behalf.
But if you are classified as an independent contractor in the firm, then the company will not require much legal work. You are responsible for your taxes, and you will not be eligible for any benefits from the firm, such as employee insurance, etc.
However, if you are also misclassifying your worker and contractor, then you may end up in a tricky situation by the IRS.
The difference and classification of workers should be made wisely to avoid unfavourable future possibilities for the firms. So, this was a simple classification through which you can easily classify your workers and handle your tax criteria wisely.