The Difference Between Independent Contractors and Employees

There are generally two ways in which a person can work--as an independent contractor or as an employee. With independent contractors, the employer does not have the right to control the means or method in which the work is done; with employees, the employer has the right to control the means and method in which the work is done.

Employers do not have to withhold taxes, pay into unemployment, worker's compensation, etc. for independent contractors--these are the independent contractor's responsibilities; employers must withhold taxes, pay into unemployment, worker's compensation, etc. with employees.

Which is preferable? If you are just starting a business and have little start up money, using independent contractors is preferable at least from the start since you only pay them on work performed and not on an hourly wage. Caveat: Make sure you have a large liability insurance policy with independent contractors since you are more susceptible to liability than with employess. As the start up gets larger, then you should move toward having employees over independent contractors. Of course, this all depends on the type of business you are in.

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Good luck!