Employee vs. Contractor: How Does an Employee Status Affect payroll?
It doesn’t matter if you are doing your payroll self or if you do payroll outsourcing, there is a difference in calculating your taxes in if you are an employee and a contractor. Before you are thinking of paying a worker, you should know all your responsibility as an employee. No matter if you are an Employee or a contractor. How does your employee status affect your payroll? Here is everything you should know about your payroll if you are an employee or a contractor.
What is the difference between an employee and a contractor?
The state tax agencies determine that the main difference between the employee and a contractor is the amount of control the employee has over a worker. They decide what the payroll services will look like and if you are an employee or a contractor.
Company employees work normally only for one boss and the workers duties are determined by that one boss. This mean that an employee is controlling what the workers do and that there is only one boss, and that is you. The employee is also determining what is produced, and where and when the workers should be working.
A contractor is a boss who has multiple clients who are working on their own schedule and then provides an invoice for the work when the work is finished. As a contractor you are still paying your workers, but your workers have more than one boss that they are working for. On the one hand, they are working for you, the contractor. And on the other hand, they are working for your client, who is telling the workers what to do and when to do it.
The tax rules for the different employee status
No matter if you are an employee or a contractor, all the income is taxable. However,, if you are a contractor, your business isn’t responsible for the payroll services when you are delivering a service to a business as a contract. The independent contractor is only responsible for the social security, Medicare taxes as well as federal and state taxes.
The employee will be responsible for all the taxes from each paycheck of the workers. And they are also responsible for the half of other payable taxes like the social security, Medicare and the federal and state taxes. You will also be responsible for paying the unemployment tax for each worker that is working for you in your business.
So, how does the employment status affects your payroll? If you are a contractor, you are responsible for the other taxes, except for the unemployment taxes. And you are not paying the paycheck taxes. If you are an employee, then you are responsible for paying the paycheck tax for each and every worker and you are responsible to pay the half of the social security, Medicare taxes and federal and state taxes. And you will be responsible for paying unemployment taxes.
Before you are going to a payroll company like Payrollserviceaustralia.com.au, you must be aware if you are a contractor or an employee before outsourcing your payroll.