Page 4 - Payroll
P. 4
Employee or Subcontractor?
A business owner should take care in properly classifying a worker. Are they an
employee, and eligible for the protections and benefits that go along with that
classification? Or are they subcontractors and responsible for their own tax payments
and related filings?
Reporting Differences
Companies often decide to treat workers as subcontractors
to avoid the burden of running payroll, especially if they are
small and only have one employee. Subcontractors receive a
1099 at year end and are responsible for submitting quarterly
payroll estimates to cover any taxes due on income earned.
This also means they are paying both the employee and the
employer halves of FICA tax, and they are probably not
covered by the employer's unemployment or workers'
compensation insurance policies.
An employee should receive a W-2 at year end and the
employer is responsible for withholding and remitting all
payroll taxes on their behalf. They are also covered by
minimum wage, overtime pay, and other employee benefit
regulations.
Page 2 WWW.WEBSITEHERE.COM Terri Johnson, CPA
