Employee Or Independent Contractor? 2 Factors To Consider Before Making This Decision

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If you are about to start a new job and are asked whether you would prefer to be an employee of the company or an independent contractor, which would you choose? Before you make a decision on this matter, it's vital to understand the differences between these two choices. Here are two important differences you should be aware of before you choose one or the other.

The Way Income Works

One of the main differences between employees and independent contractors involves the way income works. An employee is a person that works for the company and is paid a certain wage. This could be an hourly wage or a salary, or it could be wages earned on commission. Independent contractors, however, are paid by the job. They typically have to bid for jobs and are paid based on the quotes prices.

While this is a main difference, there is another difference relating to income that is even more important. Employees of companies get paychecks which have withholdings taken from them. These withholdings are for things such as:

  • Federal income tax
  • State and local tax
  • Medicare and social security
  • Health insurance
  • Savings plan

Because these things are withheld, an employee of a company will typically have enough taxes withheld during the year to offset the taxes owed on tax day.

If you choose to be an independent contractor, the company will not withhold taxes. This means you will either have to pay monthly or quarterly taxes, or you will have to pay a large tax bill when you file your taxes. If you are not aware of this difference when you begin working, you might end up with a big surprise on tax day.

The other benefit of choosing to be an employee is your employer will match some or all of the contributions you make to Medicare and social security. This means you may could get a bigger social security check when you retire.

Workers' Compensation Insurance

The insurance coverage and protection you have is different too when you compare being an employee and an independent contractor. If you are an independent contractor, you are basically a business owner. While this offers some advantages over being an employee, it also has disadvantages when it comes to insurance coverage, especially if you are injured on the job.

When a person is injured on the job, there is one big question to ask: Is the person an employee or an independent contractor? If the person is an employee, he or she has the right to file a claim with the employer for workers' compensation benefits. If the person is an independent contractor, this offer does not exist.

Workers' compensation insurance is something employees must legally carry and provide for all employees of the company; however, this insurance does not cover independent contractors the company hires for jobs. This type of insurance is designed to cover lost wages and medical bills to any employee that is injured on the job.

When you are an independent contractor and are injured on a job, you could be out of luck when it comes to insurance, unless you have a policy in place that covers job-related injuries for the company you run.

As you face this big decision, you should consider these two factors. While there are benefits of owning and running your own business, becoming an employee of a company offers so many great advantages you will not receive as an independent contractor.

If you think there is even a small chance that you may get injured on this job, choose to be an employee. You will be protected with workers' compensation insurance if you choose this option, and you could hire a workers' compensation attorney to help you with a claim if this is ever necessary. Click here for more info.


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