What are the Differences Between a Payroll Employee and a Contracted Worker?


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If you don’t know a lot about employment law or payroll processing, then it might be a challenge to understand the differences between payment methods for a payroll employee and a contracted worker. But, it is essential to know how to pay and manage the various categories of workers that are supporting your company.

Mark Rowley, Owner
RandR Payroll Services

Even though it might seem like independent contractors are similar to general employees, there are a few legal considerations that need to be addressed.

Common Law Principles that Define Independent Contractor Status

Here are some of the legal principles that are used to define an independent contractor. The person should not be on payroll if these requirements are met:

  • The worker providers all the tools, materials, and equipment that is needed to perform the work
  • The employer does not supply office space or other materials that might be required
  • A written contract is in place, as agreed upon by both the employer and the worker
  • No employee benefits are provided, such as insurance, pension, vacation pay, etc.
  • The worker manages the hours that are worked
  • The employer doesn’t have the right to control what the worker does or how the job is completed
  • Pay rate is determined by the worker, not the employer

When a person falls under the category of an independent contractor, they should submit invoices and be paid accordingly. Every year, you will need to provide a 1099-Misc form outlining the payments that were sent. Otherwise, an employee who receives a steady paycheck and the work and hours are closely managed, then this person should be classified as an employee and payments need to be processed through payroll.

If you have questions about worker classification, then the best thing that you can do is talk to an HR professional or a payroll specialist. We can help you sort through the comparisons to ensure that you are using the right payment methods for your employees and contractors.

Do you have questions about payroll processing? Then you need to talk to our experienced team at R&R Payroll & Bookkeeping Services. We offer a variety of services to support the payroll needs of your company: (951) 296-0412.



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