JOHN B. KENNEDY         TAX CONSULTANT          CORPORATE FINANCE 

(816) 942-6190​​​
312 E. Woodbridge Lane
Kansas City, Mo.  64145

​EMAIL:  jbkennedy@sbcglobal.net       WEBSITE:    jbkennedytaxconsultant.com
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EMPLOYEE OR INDEPENDENT CONTRACTOR?

Three weeks ago, I received a phone call from a client who had a very good question.  She said to me that she had been offered a job and was asked, “Do you prefer to work as an employee or an independent contractor?”  For many reasons, this question may be asked by many employers to applicants. 

 This question sounds very simple and inconsequential.  However, the opposite is true.  Lets first explore the definitions of the two terms. 
 If a worker for an employer is an employee, the employer has much more control over the worker.  To list a few of these controls, the employer may determine the hours that the worker clocks in and out from work, the employer may demand of the worker that they perform their job in a certain manner, the employer must supply tools and equipment for the worker to use while performing tasks,  if there is a benefit package offered to full time employees, and that worker must be included unless part time.  The employer must also follow proper payroll procedures by withholding federal, state, and local (if applicable) income taxes, social security taxes, and medicare taxes. 
 If a worker is an independent contractor, the employer is unable to exercise as much control over the worker.  The employer is unable to demand that the worker work a structured schedule, the worker may determine the manner in which the work is completed, the worker must use his own equipment and tools in completion of the work, and the worker must perform the same tasks for other businesses.  The employer need not withhold taxes from checks for compensation.  The employer need not offer benefit programs to an independent contractor. 

The issue of employee vs independent contractor is becoming more of an important issue.  Recent health care legislation which has been signed into law, commonly known as Obamacare, has clauses which involve the number of employees which are employed by the employer.  For example, if an employer has over fifty employees, that employer would be compelled to provide health care coverage.  Because of such statutes, it may be to the employers advantage to keep the number of employees below the threshold of fifty.
 
There is another big advantage for an employer to retain independent contractors as workers.  If a worker is an employee, the employer must match the amount of social security and medicare tax withheld from the employees paycheck and remit the entire amount to governmental taxing authorities. If the worker is an independent contractor, the employer need only pay the gross amount to the worker. 
The current trend of retaining employees seems to be going against the employer. 

Because of this trend, more and more employers will be turning to independent contractors to cut costs.  One example of this trend is in the utility industry.  Quite often, various workers on utility services will arrive in vehicles which are marked with the name of another company.  This means that the worker fixing your cable television service may not be an employee of the cable company. 

Call my office anytime if you wish to discuss any of the issues discussed in this article.