Employee vs. Contractor

What is the difference between an employee and a contractor?

A business may pay an independent contractor and an employee for the same or similar work, but there are important legal differences between the two. For the employee, the company withholds income tax, Social Security, and Medicare from wages paid. For the independent contractor, the company does not withhold taxes.

Employee

Engagement Letter
An engagement (agreement) letter defines the legal relationship between a professional firm and its client. This letter states the terms and conditions of the engagement, principally addressing the scope of the engagement and the terms of compensation for the firm. Most engagement letters follow a standard format and are given/signed before the employee begins working.

What does the engagement letter entail?
It informs the new member of your staff about the terms and conditions associated with their employment in your organization. … It summarizes details such as the starting date, the title of the job, the hours of work, and pay among other benefits, which the employee is entitled to.
PTO Calculator
Generally, you can use PTO whenever you want. Some companies have specific limits for time off (paid and unpaid) broken out into different categories such as sick time, personal time, and vacations. Other companies just grant employees a set amount of PTO to use anytime they are unable to work or don’t want to work. This should be determined and included in the engagement letter.

Here is a Free PTO calculator for you to use, it will calculate sick time off, holiday time off or any other type. We created this calculator to help small businesses determine where an employee is in the PTO cycle. Because we do not have the actual time cards of the employee, there are a few limitations.
I9 Form
Use Form I-9 to verify the identity and employment authorization of individuals hired for employment in the United States. All U.S. employers must properly complete Form I-9 for each individual they hire for employment in the United States.

Form I-9 Acceptable Documents
W2 and W4 Form – What is the difference?
What is the difference between a W4 and W2?
What’s the major difference between IRS W-2 vs W-4 forms? A W-4 form is completed by the employee and used by employers to calculate how much income tax to withhold. The purpose of the W-2 form is to report how much the employee was paid over the past year and how much tax was withheld.

Form W-2 is filed by employers to report wages, tips, and other compensation paid to employees as well as FICA and withheld income taxes.

Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. Consider completing a new Form W-4 each year and when your personal or financial situation changes.
Part-time vs Full-time employees (hours)
 Full-time employment is usually considered between 30-40 hours a week, while part-time employment is usually less than 30 hours a week. … A full-time employee is, for a calendar month, an employee employed on average at least 30 hours of service per week, or 130 hours of service per month.
Background Check
The background check is often a final step taken by employers to help ensure a sound hiring decision and protect the employer from a number of potential risks. For many employers, a background check is a reliable way of verifying claims made by job seekers during the hiring process.

Background Check Options:
Sterling Check
BackgroundChecks.com

Contractor

MOU (Memorandum of understanding)
A memorandum of understanding is a document that describes the broad outlines of an agreement that two or more parties have reached. MOUs communicate the mutually accepted expectations of all of the parties involved in a negotiation. While not legally binding, the MOU signals that a binding contract is imminent.

How MOU Works
What is the difference between an MOU and a letter of agreement (engagement)?
The primary difference between a letter agreement and an MOU is the structure. A letter agreement is, literally, a letter written from one party to the other that details your understanding. … Like a letter agreement, an MOU is a simple document signed by both parties, but it is structured more like a standard agreement.
W9 (Independent Contractor)
IRS Form W-9 is most commonly used by individuals when they are working as a freelancer or independent contractor. … The W-9 is used in a wide range of payment situations, but most commonly, taxpayers fill them out when they are working as a freelancer or independent contractor rather than an employee.
What is a W9 vs. 1099?
A W-9 form is used by the IRS to gather information about an independent contractor so that their earnings can be reported at the end of the year. On the other hand, a 1099 form is the paperwork used to report how much that contractor earned at the end of the year.
What is a 1099 MISC vs. 1099 NEC?
The 1099NEC is now used to report independent contractor income. But the 1099MISC form is still around, it’s just used to report miscellaneous income such as rent or payments to an attorney.

1099 – Misc End of Year
1099 – Misc Form
Additional Info

1099 – NEC (IRS using again for 2020)
1099 – NEC Form
Additional Info
1099 vs. W2?
What is the difference between a 1099 and a W2? 1099 employees are self-employed independent contractors. They receive pay in accord with the terms of their contract and get a 1099 form to report income on their tax return. A W2 employee receives a regular wage and employee benefits.
Background Check
The background check is often a final step taken by employers to help ensure a sound hiring decision and protect the employer from a number of potential risks. For many employers, a background check is a reliable way of verifying claims made by job seekers during the hiring process.

Background Check Options:
Sterling Check
BackgroundChecks.com
Updated on January 5, 2021

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