Independent Contractors vs. Employees

A reader wrote:

Our company always uses workers who are independent contractors and receive 1099 forms for tax purposes. Can you explain the difference between employees and independent contractors, and tell me when we should use one or the other?

I’m not a lawyer, so please don’t rely on me for legal advice, but independent contractors have to be autonomous and self-directed. You can’t, for instance, pay an independent contractor to do sales calls and then require that he be at your office everyday at 9AM in a suit and tie. Your requirements would make the person a de facto employee, and you’d be responsible to withhold payroll taxes.

The IRS (since they make the rules) says it best:

A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.


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